Stocks fall to lowest since December 2020 amid fresh recession worries

US stocks sank on Thursday as investors weighed the potential economic costs of the Federal Reserve’s ongoing struggle with inflation.

The S&P 500 fell 3.25% to 3,666.77 points, its lowest level since December 2020. It also erased gains after rising 1.5% on Wednesday. The Nasdaq Composite is down more than 4%, dropping the index by more than 30% year-to-date. The Dow dropped 741 points, or 2.4%, to close below 30,000 for the first time since January 2021.

Stocks, which initially rose after the Fed’s first 75 basis point rise since 1994 on Wednesday, rebounded as traders assessed the potential that the central bank’s measures to reduce inflation would trigger a deeper slowdown in economic activity. .

The Federal Open Market Committee (FOMC) Summary of Economic Projections (SEP) on Thursday showed that the committee itself now sees a less rosy economy ahead as it continues to raise interest rates. The FOMC now anticipates that the unemployment rate will reach 3.7% by the end of this year (vs. 2.8% increase seen previously). The Fed also raised its forecast for the year-end core inflation rate and its expectation of where the Fed funds rate would end up in 2022.

The prospect of lower growth, along with a more aggressive path in interest rate hikes ahead, appeared to justify some experts’ concerns that the Fed’s window to achieve a “soft landing” had almost or already passed. Fed Chair Jerome Powell suggested on Wednesday that a 50- or 75-bp rate hike looked closer to the next central bank meeting in July. While the Fed is still predicting that GDP growth will end in 2022, 2023 and 2024 in positive territory, some have suggested that this may be overly optimistic.

“The Summary of Economic Forecasts (SEP) and President Powell’s presser highlighted a committee that sees an increasingly narrow path to a soft landing, keeping that as a baseline,” wrote Matthew Luzzetti, chief economist at Deutsche Bank in USA, in note. . “The statement removed reference to maintaining a strong labor market as inflation comes under control and the SEP anticipates that the unemployment rate will eventually rise by about half a percentage point. [Wednesday’s] meeting and that this tightening will trigger a recession in 2023 that will lead to a more material increase in the unemployment rate”.

Powell, for his part, said on Wednesday that the Fed was not looking for a recession to meet the central bank’s targets of reducing inflation. However, whether such an outcome is avoidable as a by-product of the Fed’s moves remains a question for markets, and one that is likely to keep volatility in play, some strategists said.

“‘Clear and convincing’ evidence of moderating inflation has not yet materialized… More volatility is likely with the Fed firmly reliant on data,” Julian Emanuel, senior managing director at Evercore, said in a note. “Ideally this will include stocks reflecting signs of capitulation, the foundations for ‘a’ fund are being laid.”

“Until more necessary and sufficient signals (gasoline price turn and VIX [spikes above 40] in the volume of heavy stock) from ‘a’ bottom, not necessarily ‘the’ bottom appear, we keep the exposure balanced,” he added.

NEW YORK, NEW YORK – JUNE 14: Traders work on the floor of the New York Stock Exchange (NYSE) on June 14, 2022 in New York City. The Dow was higher in morning trading after a drop on Monday of more than 800 points, which put the market in bearish territory on fears of a possible recession. (Photo by Spencer Platt/Getty Images)

In motion

  • Twitter (TWTR) Shares tumbled Thursday afternoon, erasing previous gains following Elon Musk’s long-awaited general meeting with the social media company’s employees. Musk reportedly discussed the goal of growing Twitter’s user base to 1 billion users and suggested that subscription and advertising sales would be key to the company’s revenue growth in the future, Bloomberg reported, citing people familiar with the matter. However, he also did not directly address during the meeting whether he had committed to completing his takeover of the company.

  • Robinhood (HOODED) Stocks fell again on Thursday amid the recent slump in cryptocurrency prices and as Wall Street firms took an increasingly bearish tone on the online trading platform’s actions as regulatory concerns mount. Atlantic Equities downgraded the stock to Underweight from Neutral on Wednesday and lowered its price target to Wall Street’s lowest by $5 a share, Bloomberg data showed.

  • Adobe (ADBE) Shares fell ahead of the company’s fiscal second-quarter earnings report, which is due on Thursday after the market closes. Consensus analysts see the software company delivering adjusted earnings of $3.31 per share and revenue of $4.35 billion.

This post will be updated.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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