The Dow Jones Industrial average tumbled below the key 30,000 level on Thursday as investors worried the Federal Reserve’s more aggressive approach toward inflation would bring the economy into a recession.
The Dow had rallied on Wednesday after the Fed raised rates by the most since 1994, but reversed those gains and then some on Thursday, tumbling to the lowest level since January 2021.
The Dow Jones Industrial Average dropped 2.4%, or 730 points, and is down more than 4.4% on the week. The S&P 500 slipped 2.7% while the Nasdaq Composite slid 2.8%.
“It’s about time we exit this artificial world of predictable massive liquidity injections where everybody gets used to zero interest rates, where we do silly things whether it’s investing in parts of the market we shouldn’t be investing in or investing in the economy in ways that don’t make sense,” Allianz chief investment advisor Mohamed El-Erian told CNBC’s “Squawk Box” on Thursday. “We are exiting that regime and it’s going to be bumpy.”
Tech shares moved lower after a bounce on Wednesday. Tesla, PayPal, Nvidia, Amazon and Netflix all slipped more than 3%. Travel stocks including United, Delta and Carnival also took a leg lower along with financial closely connected to economic growth.
“There is an astonishing level of tech selling right now,” wrote CNBC’s Jim Cramer in a tweet Thursday. “It is breathtaking to watch as sellers are sending the best techs down gigantically at 5 a.m.”
Data out Thursday further indicated a dramatic slowdown in economic activity. Housing starts dropped 14% in May, topping the 2.6% decline expected by economists polled by Dow Jones. The Philadelphia Fed Business Index for June came in with a negative 3.3 reading, its first contraction since May 2020.
As stocks fell, the 10-year Treasury yield resumed its massive June run on Thursday and was last trading around 3.44% after ending May at 2.84%.
Thursday’s moves came after stocks ended the previous session higher, with the Dow and S&P 500 both snapping five-day losing streaks. The 30-stock benchmark added about 304 points, or 1%, while the S&P 500 advanced 1.46%. The tech-heavy Nasdaq Composite was the relative outperformer, rising 2.5%.
“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Federal Reserve Chairman Jerome Powell said at a news conference following the decision t hike rates.
Stocks took a leg higher Wednesday after Powell said that a 50 or 75 basis point increase “seems most likely” at the next meeting in July, indicating the central bank’s commitment to fighting inflation. Powell did caution, however, that decisions will be made “meeting by meeting.”
Market sentiment appeared to sour once again Thursday as other central banks around the globe adopted more aggressive policy stances and investors questioned whether the Fed can pull off a soft landing.
The Swiss National Bank overnight raised rates for the first time in 15 years. The Bank of England was set on Thursday to raise rates for the fifth straight time.
The major averages entered Thursday’s session down for the week and well below record levels.
The S&P 500 and Nasdaq Composite are both in bear market territory, down roughly 21% and 32% from their all-time highs in January and November, respectively. The Dow, meantime, is 17% below its Jan. 5 all-time intraday high.
Rampant inflation, which is at the highest level in 40 years, has weighed on the major averages, as have fears around slowing economic growth and the possibility of a recession.
Morgan Stanley chief U.S. equity strategist Michael Wilson warned that the inflation problem won’t be solved overnight.
“It also raises the risk of a recession because you’re bringing forward rate hikes even faster, and I don’t think it’s going to help the bond market,” he said on CNBC’s “Closing Bell.”