Stocks fell again on Thursday, extending Wall Street’s weekly losses as central banks around the world hiked interest rates to fight inflation.
The S&P 500 Index fell 0.8%, its third straight decline. The benchmark index fell around 3% this week.
The Dow Jones Industrial Average fell 0.4% and the Nasdaq Composite lost 1.4%. The Russell 2000 index of smaller companies fell 2.3%, a sign of investor concerns about the economy. Major indices record fifth weekly loss in six weeks.
Bond yields rose for the most part. The 2-year Treasury note yield, which is trending in line with expectations for the Federal Reserve stock, rose sharply late Wednesday to 4.11% from 4.02%. It is trading at its highest level since 2007. The 10-year Treasury yield, which drives mortgage rates, rose to 3.70% from 3.51% on Wednesday.
The recent sell-off reflects investor concerns that the Fed may need to be more aggressive than it has signaled to finally get inflation under control, said Barry Bannister, Stifel’s chief equity strategist. That scenario is unlikely if prices stabilize and fall, but it could take more than a year for that process to happen, he said.
“The question is how patient is the Fed and the market,” he said.
Central banks in Europe and Asia hiked rates a day after the Federal Reserve announced another large rate hike and signaled more to come.
The British central bank increased interest rates by another half percent. The Swiss central bank raised its benchmark interest rate by 0.75 percentage point, the highest ever, and said it could not rule out further hikes. The central banks in Norway and the Philippines also raised interest rates.
The Fed and other central banks are raising interest rates to make borrowing more expensive. The goal is to slow economic growth enough to tame inflation, but not so much that economies slide into recession. Wall Street fears the Fed may apply the brakes too hard in an already slowing economy, increasing the likelihood of a recession.
On Wednesday, Fed Chair Jerome Powell reiterated his determination to raise interest rates high enough to push inflation back towards the central bank’s 2% target. Powell said that with this latest rate hike, the Fed is just beginning to get to that level. The US Federal Reserve increased interest rates, which cover many consumer and business loans, to a range of 3% to 3.25%. This is the fifth rate hike this year and from zero at the start of the year.
The Fed also released a forecast known as a “scatter chart” showing that its policy rate will come in at 4.4% by the end of the year, a full point higher than the June forecast.
“There aren’t many easy answers when the world’s most powerful entity, the Federal Reserve, is committed to this rate hike path,” said Michael Antonelli, market strategist at Baird. “People just race there.”
The S&P 500 index fell 31.94 points to 3,757.99 points on Thursday. The index is now at its lowest since mid-June and is down more than 21% so far this year.
The Dow lost 107.10 points to close at 30,076.68 while the Nasdaq closed down 153.39 points at 11,066.81. Russell fell 39.85 points to 1,722.31.
Losses were large and concentrated in retail and technology, financial and industrial stocks. Starbucks was down 4.4%, Nvidia was down 5.3%, American Express was down 3.8% and UPS was down 3.4%.
Actions in the healthcare sector were among the few bright spots. Johnson & Johnson rose 1.8%.
The companies are nearing the end of the third quarter and gearing up for another big round of earnings reports, although some early news has leaked. Homebuilder Lennar rose 2% after reporting strong financial results for its third quarter. Fellow homebuilders KB Home fell 5.1% after warning of supply chain problems and a mixed financial report.
AP business writers Joe McDonald and Matt Ott contributed to this report.