Dow below 30K; Nasdaq, S&P fall more than 3% as Wall Street worries about recession

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Stocks dropped early in Thursday’s trading, as investors continued to digest the previous day’s Federal Reserve decision, which saw the central bank announce its largest rate hike in over a quarter century. The slide sent the Nasdaq lower by more than 3% and pushed the Dow Jones below 30K for the first time since late 2020.

The Dow Jones is -2.4%, falling nearly 725 points to 29,944. The S&P 500 is -3.1%, a decline of 117 points to 3,673. The Nasdaq is -3.8%, dropping 424 points to 10,675.

The S&P 500 hasn’t closed below 3,700 since December 2020.

On Wednesday, the Fed raised its key rate by 75 basis points, the largest hike since 1994. Meanwhile, Fed Chair Jerome Powell suggested that another 75-basis-point increase could be on the table for the central bank’s next meeting.

Shares rallied in the immediate aftermath of the Fed announcement, as investors bet that an aggressive rate-hiking campaign would finally get inflation under control. Thursday’s trading saw the focus shift to the prospects of an eventual recession, as worries that fast-rising interest rates will likely curtail growth and possibly trigger a downturn.

On an economic front, Initial Jobless Claims data dropped by 3K to 229K compared to the forecasted 220K. This compared to a revised figure of 232K from the previous period.

In other news, fresh data pointed to potential weakness in the once red-hot housing market. Figures on housing starts and building permits slid more than expected.

May housing starts declined 14.4% compared to last month to a seasonally adjusted rate of 1.549M vs. the expected 1.695M. Building permits declined by 7%.

While benchmark indices have declined, longer term U.S. Treasury yields have gained. The U.S. 10 Year yield has gained 4 basis points to 3.44%, and the U.S. 30 Year yield jumped 5 basis points to 3.45%. At the same time, the U.S. 2 Year yield remains flat at 3.27%.

Oil prices also fell at the start of trading with prices of crude coming down as low as $112.79 a barrel. However, oil while still down on the session rebounded to $114.15 a barrel.

What’s next for the Fed?

Citi put out a note that said: “The message is clear: the Fed plans to rapidly raise policy rates to a terminal rate close to 4%. We now expect another 75bp rate hike in July, 50bp hikes in September and November and 25bp hikes in December, January and March to bring rates to 4-4.25% (up from our previous expectation for 3.5-3.75%)”

Morgan Staley highlighted in a note: “We expect the Fed to deliver an additional 75bp hike at its July meeting before stepping the path down to a peak of 3.625% end of this year.”

Bank of America stated: “We now see the Fed hiking to 4.15% by next spring.”

Among active stocks, NVIDIA Corporation (NVDA) has declined as the firm’s director sold $36M worth of common stock.