Dow Falls over 1,000 Points due to Inflation, Rate Hikes

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The Dow Jones Industrial Average fell by over 1,120 points on May 5 as investors reflected concerns about the economy and interest rate hikes by the Federal Reserve.

From the beginning of trading this morning, the Dow began losing value as investors sold stock in large quantities, and it closed more than 3 percent down. Similar market-wide losses were experienced on the S&P 500 and the Nasdaq Composite indices. These declines marked the worst day for the market in 2022.

The loss comes after a week of significant volatility in the markets. On May 4, the Dow surged 932 points, while other indices saw similar increases. Just two days prior, however, the Dow had experienced its biggest drop since the onset of Covid-19 in March 2020.

Experts attribute the sharp changes to a collection of bad economic news over the last few months, chiefly led by the rise in inflation across the United States, which has reached a 40-year record high.

Last week, the Federal Reserve indicated that interest rate hikes would follow to tame inflation, thereby limiting spending and investment. Moreover, new economic data from the Bureau of Labor Statistics showed that labor productivity fell by 7.5 percent in the first quarter of 2022, the fastest decline since 1947.

On May 4, the Federal Open Market Committee voted to raise interest rates by half a percentage point, which is said to have precipitated the following day’s selling spree.

“The markets still haven’t figured out what to do about the Fed,” wrote John Lynch, chief investment officer for Comerica Wealth Management, in a note to CNN.

The volatility has, however, surprised even Wall Street veterans. “I’ve never seen anything like this,” claimed Danielle DiMartino Booth, CEO of Quill Intelligence, a Wall Street research firm, in comments to CNN, stating that the losses were “violent not just volatile.”

However, analysis by the Wall Street Journal suggests that these sales are driven by attempts to rebalance portfolios with new stocks, removing technology and other firms that have performed poorly in recent weeks.

Indeed, the day’s losses were primarily driven by technology stocks, which have seen a week of significant reductions in value after poor quarterly reports.

Amazon, Apple, Facebook-parent Meta, and Google-parent Alphabet all saw losses in excess of 5 percent on Thursday. Tesla, whose stock is currently being sold by Elon Musk to finance his Twitter purchase, dropped 8.3 percent. Twitter, however, increased its value by 2.7 percent to $50.37, on news that Musk had secured additional financing from investors to purchase the company.

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