U.S. stock indexes closed sharply lower on Thursday in a broad sell-off as recession fears grew following moves by central banks around the globe to stamp out rising inflation after the Federal Reserve’s largest rate hike since 1994.
The benchmark S&P 500 suffered its sixth decline in seven sessions. Stocks had rallied on Wednesday as the Fed delivered an aggressive 75 basis point rate hike, as expected, to help the index snap its longest daily losing streak since early January.
But rate hikes by Switzerland and Britain on Thursday reignited fears that attempts by central banks to curb inflation could lead to sharply slower growth worldwide or a recession.
“The selloff is entirely related to the shift in central bank policy – there are renewed concerns of a synchronized global slowdown that has to do with central banks around the world being more hawkish than expected,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.
“The Fed and other central banks are intentionally engineering a slowdown and every day that this persists, the odds of hitting the soft landing they’re aiming for get harder and harder.”
Wells Fargo said the odds of a recession now stand at more than 50%, following the Fed’s decision. Other banks that have warned of rising recession risks include Deutsche Bank and Morgan Stanley.
“Technically, the market remains weak,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“The Fed rally is fading as investors question the central bank’s ability to orchestrate a soft landing. The bear market is in full force still and yet to reach a level where stocks can comfortably bounce off of.”
At 9:56 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 692.04 points, or 2.26%, at 29,976.49, the S&P 500 (.SPX) was down 105.57 points, or 2.79%, at 3,684.42, and the Nasdaq Composite (.IXIC) was down 355.94 points, or 3.21%, at 10,743.21.
Among major U.S. banks, Morgan Stanley (MS.N) led losses with a 4% slide.
Wells Fargo said the odds of a recession now stand at more than 50%, following the Fed’s decision. Other banks that have warned of rising recession risks include Deutsche Bank and Morgan Stanley.
The benchmark index has shed 22.9% year-to-date and is in a bear market, while the Nasdaq Composite and the S&P 500 indexes were set to mark their 10th weekly decline in the past 11 weeks.
By midday, the Dow Jones Industrial Average was down 685.76 points, or 2.24%, at 29,982.77, and the S&P 500 was down 114.83 points, or 3.03%, at 3,675.16, with both indexes hitting their lowest levels since January 2021.
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