Major stock indexes are on pace for their worst day in months as investors once again sell off in anticipation of further restrictive policy from the Federal Reserve as the central bank’s effort to cool the U.S. economy hit further road bumps.
Investors ran off of their interest rate optimism Thursday.
The Dow Jones Industrial Average tanked 500 points, or 1.5%, by 11:30 a.m. ET, while the S&P 500 and tech-heavy Nasdaq slid 1.3% and 1.5%, respectively.
That’s the first time each index fell 1.3% or more since March 22.
The downswing came as investors digested several reports indicating there was stronger labor market growth than expected—prompting Dallas Fed President Lorie Logan to suggest two or more increases to the federal funds rate may be on the way.
“The data-dependent Fed will look at the labor market and that should support the case for much more tightening,” said Oanda analyst Edward Moya.
Among Thursday’s biggest stock losers were rate-sensitive technology stocks like Tesla, Alphabet, Nvidia and Amazon, each down 2%.
The bond market tanked considerably amid the renewed concerns about interest rates, and 10-year U.S. Treasury yields jumped 12 basis points to a four-month high.
In the last 16 months, the Fed has hiked the federal funds rate from near zero to a top level of 5.25%. Stocks historically slump during periods of elevated interest rates, but they have recovered remarkably since bottoming last fall, even as interest rates continue to soar. The S&P is up nearly 25% since last September—when rates were 200 basis points lower. Beginning late last year, concerns about sticky inflation and the subsequent monetary policy response quickly gave way to buzz about artificial intelligence and cost-cutting optimism as the top talking points on Wall Street. Consumer prices are about 18% higher this May than they were in May 2020, according to Labor Department data, as Americans continue to feel the pain of elevated prices even as headline inflation comes down.
The Labor Department will release data on unemployment rate and inflation Friday and Wednesday, respectively. The highly anticipated economic reports will likely influence the Fed ahead of its July 25-26 meeting during which it will determine its path for interest rates.
Meta and Microsoft were the only American companies with a market capitalization of more than $100 billion whose stock gained Thursday.Wall Street cheered on the social media giant’s launch of Twitter competitor Threads, while Microsoft benefitted from Morgan Stanley bumping its price target for the legacy tech stock.
Fed Officials Expect More Rate Hikes Ahead—And Still Foresee A Recession This Year (Forbes)