Stock market falls as post-Fed rally fades

U.S. stocks fell on Thursday, reversing the previous day’s gains as volatility continued to rock the market.

The S&P 500 fell 2.9%, while the Dow Jones Industrial Average fell 2.3%, or about 716 points. The tech-heavy Nasdaq Composite fell 3.5%.

Major indexes rallied on Wednesday after the Federal Reserve raised its benchmark interest rate by 0.75 percentage points. It was the Fed’s biggest rate hike since 1994, but it matched investor expectations as the central bank raced to get high inflation under control. Fed Chairman Jerome Powell said he “didn’t expect moves of this magnitude to be common,” and investors bought stocks of companies from banks to tech companies.

That optimism crumbled on Thursday. Stocks fell overall, with each of the 11 S&P 500 sectors falling during the day.

Some analysts said investors are accepting the growing risks to economic growth.

“I think it’s the realization that we could really be heading into a recession. I’m not sure that has really crossed the market’s mind so far,” said Altaf Kassam, head of the investment strategy for Europe, Middle East and Africa at State Street Global Advisors.

Shares also fell overseas. The pancontinental Stoxx Europe 600 index fell 2.3%, with steep losses for rate-sensitive tech companies and economy-sensitive retail stocks. In Asia, Hong Kong’s Hang Seng fell 2.2%, while Japan’s Nikkei 225 gained 0.4%.

Federal Reserve Chairman Jerome Powell said the central bank’s goal was to reduce inflation to 2%. The Fed approved a 0.75 percentage point rate hike on Wednesday, the biggest interest rate hike since 1994. Photo: Elizabeth Frantz/Reuters

While Mr Powell suggested on Wednesday that the “unusually large” rate hike would not become commonplace, he left the door open for another 0.75 percentage point hike as early as next month.

Interest rate hikes of this magnitude could destabilize investors if they believe the Fed is running too fast to outpace inflation, said Aoifinn Devitt, chief investment officer at Moneta. “That can lead to even more anxiety in the market,” she said.

Losses accelerated after the Swiss central bank surprised investors by raising interest rates for the first time in 15 years. The Swiss National Bank raised its key rate by 0.5 percentage points to minus 0.25%, leaving only the Bank of Japan among the major central banks in developed economies to fail to raise rates to control inflation. . Economists expected the SNB to leave rates unchanged.

“This is the last hurdle to fall,” said Seema Shah, chief strategist at Principal Global Investors. “If we get the central banks that have been seen as permanently accommodative rate hikes, it’s undeniable that there is a huge inflation problem in the global economy.”

The Bank of England on Thursday raised its key interest rate as expected to 1.25% from 1%, marking its fifth move in as many meetings, and said bigger moves may be needed to get inflation under control .

Weekly jobless claims data showed 229,000 Americans applied for jobless benefits in the week ended June 11. The labor market has been an area of ​​strength for the economy, but Fed officials have signaled that weaker employment numbers could be a necessary consequence of the central bank’s effort. to control inflation.

In the US market, shares of technology companies have fallen, with Nvidia,

Amazon and Microsoft each fall between 2% and 6%. Shares of Twitter were the exception, rising 0.6% after the Wall Street Journal reported that Tesla Chief Executive Elon Musk is expected to confirm he wants to buy the social media company when addressing to its employees on Thursday.

The yield on the benchmark 10-year U.S. Treasury rose to 3.412% from 3.389% on Wednesday, resuming their rise that pushed yields to their highest levels in more than a decade. Treasury yields, which move in the opposite direction to prices, help set rates on a variety of consumer products, including mortgages and auto loans.

Bitcoin was down 3.2% from its level at 5 p.m. ET Wednesday at $20,940, according to CoinDesk, putting it on track to fall for a 10th straight day. Cryptocurrencies have been hit by broad economic concerns that are hurting risky trades and worries about certain projects and businesses in the crypto ecosystem.

In commodity markets, Brent, the international oil benchmark, fell 2.1% to $115.98 a barrel. The price of gold rose 0.5%.

Wall Street stocks rose on Wednesday after the Federal Reserve’s interest rate decision.


Photo:

Justin Lane/Shutterstock

—Karen Langley contributed to this article.Write to Will Horner at william.horner@wsj.com

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