Dow Falls Below 30,000, Tesla Is Sliding—and What Else Is Happening in the Stock Market Today
Federal Reserve Chairman Jerome Powell.
JIM WATSON/AFP VIA GETTY IMAGES
The stock market was tumbling Thursday as pessimism replaced optimism following the Federal Reserve’s three-quarter point rate increase—and the possibility it could drive the economy into recession.
Shortly after the open, the Dow Jones Industrial Average has fallen 770 points, or 2.5%, while the S&P 500 has dropped 2.8%, and the Nasdaq Composite has declined 3%. All three major indexes gained at least 1% Wednesday. The 10-year Treasury yield has risen 0.135 percentage point to 3.42%, as bond prices fall.
“The Fed is going to accept recession risk to deliver below trend [longer-term growth trend] economic growth,” wrote Dennis DeBusschere, founder of 22V Research.
Yesterday’s rate increase wasn’t unexpected, and neither was its size. Inflation has not declined, Treasury yields have soared, and the stock market has plunged, with the S&P 500 in a bear market, defined as a 20% drop. So when the Fed delivered a rate hike in line with expectations, the market rallied.
But this most recent rate hike isn’t the end of the story—and markets are now taking note of that. The Fed’s projected rate hikes looking ahead would bring the benchmark lending rate up to 3.75% by the end of 2023. That’s has brought the 2-year Treasury yield, which attempts to forecast the level of the benchmark lending rate a couple of years from the present, to 3.28%, up from Wednesday’s close and just under a multiyear high.
The point is that the Fed keeps having to plan more rate hikes in order to reduce economic demand and inflation, and markets need to reflect that. The ultimate fear is that the Fed puts the economy into a recession. To be sure, Fed Chair Jerome Powell said that the Fed hopes to become data dependent soon. That means the central bank will closely monitor how quickly economic growth and inflation decline and just how much tightening is needed.
But that’s a story for another day, as far as markets are concerned. “The positive spin from Powell is gone,” wrote NatAlliance Securities’ Andrew Brenner.
Ultimately, “They [Fed] are so far behind the curve that they have little choice” but to act aggressively in lifting interest rates, wrote Jason Brady, president and CEO of Thornburg Investment Management.
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Wenston DeSue is a realtor, organizational consultant, design, construct, build expert and developmental networker. Real estate is the business of exchange and affects every person on the planet. Real estate on all levels represents resources, access and ultimately, power. Knowledge is power…
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