Dow falls 578 points as investors digest interest rate hikes from central banks around the world

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  • US stocks tumbled on Thursday as investors digested interest rate hikes from central banks around the world.

  • The US Fed raised interest rates by 75 basis points on Wednesday in a bid to contain rising inflation.

  • Central banks in England, Switzerland, Taiwan, and Brazil all raised interest rates this week.

US stocks fell on Thursday, giving up most of their gains seen on Wednesday following the Federal Reserve meeting as investors digested further interest rate hikes by central banks around the world.

The Fed hiked interest rates by 75 basis points on Wednesday, the biggest interest rate hike since 1994, as Fed Chair Jerome Powell reiterated his main objective is to tame rising inflation while avoiding an economic recession.

May’s CPI inflation report showed inflation currently sits at 40-year highs, primarily driven by a surge in oil prices.

But it’s not just the Fed that is hiking interest rates in an attempts to reduce inflation. So far this week, central banks in England, Switzerland, Taiwan and Brazil all raised interest rates. The surge in interest rates has put a dent in stock valuations, as higher rates increase the cost of capital for businesses and increase the discount rate used in stock valuation models.

Here’s where US indexes stood shortly after the 9:30 a.m. ET open on Thursday:

Analysts at Wells Fargo think it’s increasingly difficult for the Fed to nail a soft landing, and that instead an economic recession will materialize in 2023.

“In our view, the recession will be more or less equivalent in magnitude and duration to the downturn of 1990-1991. That recession lasted for two quarters with a peak-to-trough decline in real GDP of 1.4,” Wells Fargo said in a note to clients.

The Fed’s interest rate hike didn’t help cryptocurrency prices like bitcoin and ether, which continue to trade at levels not seen since late 2020. Billionaire investor Jeff Gundlach thinks there’s more pain ahead for bitcoin, arguing that the cryptocurrency could plunge another 50% to $10,000.

Russia could be on the verge of defaulting on its debt for the first time in a hundred years. Russia faces roughly $100 million in debt payments with a grace period ending June 26. The US allowed a payment exemption to expire in May, which has made it difficult for Moscow to pay American holders of Russian debt.

West Texas Intermediate crude oil fell as much as much as 0.61% to $114.61 per barrel. Brent crude, oil’s international benchmark, dropped as much as 0.51% to $117.70.

Bitcoin fell 4.59% to $21,168. Ether prices dropped 7.81% to $1,116.

Gold jumped as much as 0.54% to $1,829.50 per ounce. The yield on the 10-year Treasury rose 15 basis points to 3.44%.

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