Dow tumbles 600 points as stock market wipes out Wednesday bounce

U.S. stocks extended losses in afternoon trade on Thursday after a batch of economic data bolstered expectations that the Federal Reserve will continue to aggressively raise interest rates in its bid to rein in the tide. ‘inflation.

How Stocks Trade
  • The Dow Jones Industrial Average DJIA,
    lost 614 points, or 2.1%, to 29,070.

  • The S&P 500 SPX,
    fell 100 points, or 2.7%, to 3,619.

  • The Nasdaq Composite COMP,
    fell 394 points, or 3.6%, to 10,657.

Deleted shares Wednesday’s winningswhen the Dow Jones Industrial Average rose 549 points for its biggest percentage point gain since July, while the S&P 500 and Nasdaq posted their biggest gains in more than a month.

What drives the markets?

The impact of Bank of England intervention to calm the UK bond market Wednesday faded in global markets as yields on Treasuries and European government debt rose again.

On the economic data front, the latest update to second-quarter GDP figures confirmed that the US economy contracted at an annualized rate of 0.6% in the second trimester. However, a weekly report on jobless claims in the United States found that the number of Americans initially claiming unemployment benefits dropped 16,000 at 193,000 in the week ended September 24, the lowest level since April.

The jobless claims data helped weigh on equities by bolstering the view that the Fed will stick to its plans to keep raising interest rates.

“I think we’ll see rates continue to rise here in the United States, since we’re not in restrictive territory yet, and rate cuts won’t happen as easily or as soon as the market expects them to,” he said. said Michael Wang, CEO and founder of Prometheus Alternative Investments, told MarketWatch.

“Expect further tightening from central banks, including the Fed, as markets seek stability and transparency for the rest of the year, which will impact the upcoming earnings season. Investors will be watching whether [Fed Chair Jerome] Powell and the Fed are sticking to their guns to raise rates regardless of the short-term impact to get inflation under control,” he said.

In a note to clients, a team of bond analysts from Barclays explained why the market impact of the Bank of England’s intervention was so fleeting.

While the bond market intervention may have averted a crisis, it did little to change the macroeconomic backdrop, and investors are instead forced to heed expectations that a combination of monetary and fiscal stimulus could further fuel inflationary pressures.

“…[A]After the end of the first rounds of short hedging and position netting, we fear that the markets may return to fixating on one issue: a significant fiscal stimulus is now accompanied by an indefinite monetary stimulus for the next few weeks. said the Barclays macro strategist team wrote.

As a result, borrowing costs are expected to continue to rise as most of the world’s major central banks rush to fight inflation, which in turn diminishes demand for risky assets.

The benchmark 10-year Treasury yield TMUBMUSD10Y,
climbed to 3.75%.

Apple Inc. AAPL was accused of helping to exacerbate the weakness in equities, while strongly contributed to the decline of the Nasdaq by more than 3% as reports of iPhone production cuts continued to weigh on the consumer tech giant. The shares are down 5.9% in the latest trades.

Investor anxiety manifested in the CBOE Volatility Index, or the VIX, VIX,
a measure of the S&P 500’s expected volatility known as the Wall Street Fear Gauge. The VIX, whose long-term average is around 20, was hovering around 33.

In a note to clients on Thursday, Nicholas Colas, co-founder of DataTrek Research, said the VIX would likely need to hold above 30 until “at least Friday” to signal a “tradeable low.”

See: Wall Street’s “fear gauge” may hold the key to the timing of the next market rally. Here’s why.

Cleveland Fed President Loretta Mester said in an interview on CNBC that interest rates in the United States have not yet reached restrictive territory and that the Fed has not yet reached a point where it should consider suspending rate hikes.

St. Louis Fed President James Bullard has defended the Fed against claims that its policy of aggressive interest rate hikes is creating impossible conditions for foreign central banks.

See: Fed rate hikes didn’t surprise foreign central banks, Bullard says

San Francisco Fed President Mary Daly was scheduled to speak at an event at 4:45 p.m. ET.

Actions in the spotlight
  • Starbucks Corp.
    shares fell 1.2% after the company announced on Wednesday that it increased its quarterly dividend to 53 cents per share.

  • Carmax inc.
    Shares fell 23.7%, making it the S&P 500’s worst performer, following weak earnings and a warning about falling consumer demand for discretionary buying.

  • General Motors Co.
    and Tesla Inc.
    also fell in tandem with Carmax as the company’s consumer spending warning weighed on automakers and their suppliers.

  • Inc.
    Shares fell 3.7% after the company announced plans to raise employee pay.

  • Bed Bath and Beyond Inc.
    fell 6.5% on Thursday, after the home goods retailer announced a much larger than expected budget loss in the second quarterbut showed that “accelerated markdowns” had helped improve excess inventory.

— Joseph Adinolfi and Jamie Chisholm contributed to this article.

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