Stocks Fall To Their Lowest Since December 2020 Amid Renewed Recession Worries

US stocks sank on Thursday as investors weighed the potential economic costs of the Federal Reserve’s continued fight against inflation.

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

Stocks, which initially moved higher after the Fed’s first 75-basis-point rate hike since 1994 on Wednesday, turned around as traders assessed the potential for the central bank’s moves to reducing inflation would trigger a deeper drop in economic activity.

The Federal Open Market Committee’s (FOMC) Summary of Economic Projections (SEP) on Thursday showed that the committee itself now sees a less optimistic economy as it continues to raise interest rates. The FOMC now forecasts that the unemployment rate will reach 3.7% by the end of this year (compared to March’s 3.5% rate) and that real gross domestic product will increase by just 1.7% (compared to the increase of 2.8% observed previously) . The Fed also raised its forecast for the core inflation rate at the end of the year and its expectation of where the fed funds rate will end up in 2022.

The narrowing of the growth outlook, along with a more aggressive path in interest rate hikes, seemed to vindicate some experts’ concerns that the Fed’s window for a “soft landing” had almost or had already passed. Fed Chairman Jerome Powell suggested on Wednesday that an interest rate hike of 50 to 75 basis points looked more likely at the central bank’s next meeting in July. While the Fed still projects that GDP growth will end each of 2022, 2023 and 2024 in positive territory, some suggested that this may be too optimistic.

“Chairman Powell’s Summary of Economic Projections (SEP) and presser highlighted a committee that sees an increasingly narrow path to a soft landing, while maintaining that as a baseline,” wrote Matthew Luzzetti, Deutsche Bank’s chief US economist, in a note. . “The statement removes reference to maintaining a strong labor market as inflation comes under control and the SEP forecasts that the unemployment rate will eventually rise by about half a percentage point. We continue to anticipate that the Fed will need to move more aggressively than signaled a [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.”

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Powell, for his part, said Wednesday that the Fed was not looking for a recession to meet the central bank’s goals of reducing inflation. However, whether that outcome is ultimately avoidable as a byproduct of the Fed’s moves remains a question for markets, and will likely keep volatility in play, some strategists said.

“‘Clear and compelling’ evidence of inflation moderation has yet to materialize … More volatility is likely with the Fed firmly data-driven,” said Julian Emanuel, senior managing director of Evercore, in a note. “Ideally, this will include actions that reflect signs of capitulation, the groundwork for a fund is being laid.”

“Even more necessary and sufficient signals (gasoline price change and VIX [spikes above 40] in a heavy stock volume) of an ‘a’ fund, it doesn’t necessarily appear ‘the’ fund, we maintain a balanced exposure,” 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 rose in morning trading after a drop of more than 800 points on Monday, sending the market into bearish territory on fears of a possible recession. (Photo by Spencer Platt/Getty Images)

Moving

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

Robin Hood (HOOD) Stocks fell again on Thursday amid a recent slide in cryptocurrency prices, and as Wall Street firms struck an increasingly pessimistic tone on the online trading platform’s shares amid rising regulatory concerns. Atlantic Equities cut the stock to Underweight from Neutral on Wednesday and cut its price target to a Wall Street low of $5 a share, Bloomberg data showed.

Adobe (ADBE) shares declined ahead of the company’s fiscal second-quarter earnings report, due Thursday after the market closes. Consensus analysts see the software company posting adjusted earnings of $3.31 per share on revenue of $4.35 billion.

This post will be updated.

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

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