US stocks fell on Thursday as investors weighed the potential economic costs of the Federal Reserve’s ongoing battle with inflation.
The S&P 500 fell more than 3.8% as the index hit its worst level of the year. It also erases the profit after up 1.5% on Wednesday. The Nasdaq Composite is down as much as 4.6 percent, dragging the index down 32 percent this year on a daily basis. The Dow fell more than 900 points, or more than 3%, and the yield on the 10-year Treasury note fell to about 3.34%.
Stocks, initially turned bullish after the Fed first 75-point interest rate hike since 1994 on Wednesday, turned upside down as traders assessed the likelihood that the central bank’s moves to reduce inflation would trigger a deeper downturn in economic activity.
The Federal Open Market Committee (FOMC) Summary of Economic Forecasts (SEP) on Thursday showed that the committee itself now sees a less-than-bright economy ahead as growth continues. interest rate. The FOMC now predicts the unemployment rate will stay at 3.7% by the end of the year (vs 3.5% seen in March) and real gross domestic product will grow by just 1.7% (vs. with the 2.8% increase seen previously). The Fed also raised its forecast for core inflation by year-end and its expectations for where the Fed’s deposit rate will end in 2022.
The softening growth outlook coupled with a more aggressive rate hike path ahead seems to substantiate some experts’ concerns that the Fed’s deadline for a “soft landing” is near or has passed. Fed Chairman Jerome Powell on Wednesday hinted that a 50 or 75 basis point rate hike looks most likely at the central bank’s next meeting in July. While the Fed still forecasts GDP growth to end each year in 2022, 2023, and 2024 in a positive light, some argue that this may be overly optimistic.
“The Summary of Economic Projects (SEP) and chair Powell highlighted a Committee that sees an increasingly narrow path to a soft landing,” wrote Matthew Luzzetti, chief US economist at Deutsche Bank. , while maintaining that as the baseline”. . “The statement removed reference to maintaining a strong labor market when inflation is under control and the SEP predicts that the unemployment rate will eventually rise by about half a percentage point. We continue to forecast. that the Fed will have to move more aggressively than signaled at [Wednesday’s] and that this tightening will trigger a recession in 2023 leading to a more severe increase in unemployment. “
Powell, for his part, said Wednesday that The Fed is not looking for a recession to achieve the central bank’s goals of reducing inflation. However, whether such an outcome can ultimately be avoided as a by-product of the Fed’s moves remains a question for markets and an outcome that is likely to remain volatile. strategists said.
Julian Emanuel, senior managing director at Evercore, said: “The ‘clear and convincing’ evidence of curbing inflation has yet to materialize… More volatility is likely to follow. with the Fed heavily dependent on data.” “Ideally, this would include stocks that reflect speculative signs, the basis for the ‘bottom’ being laid.”
“Until there are more necessary and sufficient signs (gasoline prices and VIX [spikes above 40] with high stock volume) of a ‘bottom’, not necessarily a ‘bottom’, we maintain a balanced exposure,” he added.
Twitter (TWTR) Stocks fell on Thursday afternoon, erasing earlier gains following Elon Musk’s much-anticipated hand-in-hand meeting with employees of the social media company. As reported by Bloomberg, Musk discussed Twitter’s goal of growing its user base to 1 billion users and suggested that both subscription and advertising sales will be key to the company’s revenue growth in the coming years. future. However, he is also said to have not directly addressed in the meeting whether he is committed to completing the acquisition of the company.
Robin Hood hero (HOOD) Stocks trended lower again on Thursday amid the recent drop in cryptocurrency prices and as Wall Street firms took on an increasingly pessimistic tone on online trading platform shares due to Regulatory concerns are growing. According to Bloomberg data, Atlantic Equities downgraded the stock to Mild from Neutral on Wednesday and lowered its price target to the lowest on Wall Street at $5 per share.
Adobe (ADBE) Shares fell ahead of the company’s fiscal second-quarter earnings report, which is set for release on Thursday after markets close. Consensus analysts show the software company delivering adjusted earnings of $3.31 per share on revenue of $4.35 billion.
This post will be updated.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.