US stocks fell on Thursday with stocks bearing the brunt of the sell-off, following the Federal Reserve’s biggest rate hike in nearly 30 years to tackle recession concerns from decades of high inflation.
The rally that followed the US Fed’s decision ended the S&P 500 down 3% at its lowest pace since December 2020.
All 11 major S&P sectors fell in morning trade. The energy and consumer discretionary sectors were the top losers, down 4.2% and 3.6%, respectively.
Mega-cap growth firms Amazon.com, Microsoft, Apple and Tesla slipped between 2.5% and 6%, which were also under pressure from rising US Treasury yields.
The Kroger Company collapsed after the supermarket company said margins were hurt by higher costs. Revlon filed for Chapter 11 bankruptcy because supply-chain constraints proved the tipping point for the debt-laden cosmetics giant.
Among major US banks, Morgan Stanley led losses, down 4%.
As of 09:56 am, all Dow components were in the red, while 496 components of the S&P 500 index were down.
At 9:56 am, the Dow Jones Industrial Average was down 692.04 points, or 2.26%, at 29,976.49 and the Nasdaq Composite was down 355.94 points, or 3.21%, at 10,743.21.
Treasury two-year yields resumed their bullish rise, rising 20 basis points to 3.39% on Thursday. He later halved the advance after weak housing data, outlining how higher rates were slowing the real estate market. Mortgage rates in the US have increased the most since 1987.
Declaring it was necessary to contain inflation, Jerome Powell on Wednesday made the biggest rate hike since 1994 and ruled out the obvious possibility of another jumbo hike in July. While the Fed chief sought to soften the blow of the 75-basis-point boost, saying he did not expect moves of that size to become the norm, he effectively acknowledged the prospect of an economic slowdown.
“Our main takeaway from the Fed is hawkish — meaning the Fed is going to accept the risk of a recession to deliver down-trend economic growth,” wrote 22V Research founder Denise Debuscherre.
The S&P 500 now signals an 85% chance of a US recession amid fears of a policy error by the Fed, according to JPMorgan Chase & Co. Quant and derivatives strategists’ warnings are based on an average 26% drop across the gauge. It followed its collapse in the past 11 recessions and a bear market amid concerns about rising inflation and aggressive rate hikes.
“The market got what it wanted, but it may not be the best idea to go up 75 bps in a rapidly weakening economy,” said Peter Tachir, head of macro strategy at Academia Securities.
“Despite their assurances, it is not clear to me that the Fed has the tools they say they use to drive down prices,” said Jason Brady, chief executive officer of Thornberg Investment Management.
“The band-aid was not broken and, if anything, there has been increased uncertainty about the magnitude of the next steps,” said Neil Campling, head of tech, media and telecoms research at Mirabaud Securities.
Elsewhere, investors gave up on European bonds and the franc rallied after a surprise increase in the Swiss rate. The pound rose as the Bank of England raised interest rates by a quarter-percentage today, easing pressure on a bold move to deal with price increases that pushed inflation to a 40-year high.
The bank’s monetary policy committee voted 6-3 to raise its key rate to 1.25%, with dissidents favoring a larger increase of half a point.