Stocks fall after Powell pledges to raise rates further to fight inflation

0
12

Topline

Stocks fell slightly on Wednesday as a growing number of major Wall Street firms warned the likelihood of a recession had risen sharply, while Federal Reserve Chairman Jerome Powell pledged the central bank was “strongly committed” to raising rates until inflation subsides.

Highlights

Markets ended lower in choppy trading: The Dow Jones Industrial Average fell 0.2%, less than 100 points, while the S&P 500 lost 0.1% and the tech-heavy Nasdaq Composite fell 0.2%. 0.2%.

The Dow fell as much as 400 points, but stocks pared losses following comments from Fed Chairman Powell, who said the central bank is ‘committed to taking the necessary steps to restore stability. prices” and that “ongoing rate increases will be appropriate”. ”

Citigroup has become the latest Wall Street bank to raise its chances of a recession, meanwhile predicting a 50% chance of a slowdown as consumer demand “seems to weaken”.

“The best-case scenario is a ‘soft landing’ with an uptick in the jobless rate, but the risks of a larger downturn are increasing,” Citi analysts wrote in a recent note.

Goldman Sachs on Tuesday put the odds of a recession at 30% next year and nearly 50% over the next two years, while cutting GDP estimates by up to 2% due to policy tightening. Federal Reserve currency.

Strategists at Morgan Stanley, meanwhile, raised their forecast to a 35% chance of a recession next year and predicted the S&P 500 could plunge another 20% as soaring inflation remains. very tenacious.”

Crucial quote:

The central bank is “moving quickly” to raise interest rates and remains “firmly committed” to doing so until there is “clear evidence” that inflation is normalizing, the chairman said. Fed, Jerome Powell, in testimony before Congress on Wednesday. Faced with questions from lawmakers about the central bank’s plan to tackle decades-high inflation, he promised the Fed would continue to raise rates at a rapid pace – and further than expected – if the surge in the inflation persisted.

Tangent:

Energy stocks were among the hardest hit on Wednesday morning as oil prices plummeted: shares of Exxon Mobil, Occidental Petroleum and Marathon Oil all fell 3% or more. Despite recent losses, the S&P 500 energy sector remains the best performing area of ​​the market this year, up more than 30%.

Key context:

Experts are increasingly concerned that the Fed could push the economy into a recession as it continues to aggressively raise interest rates. The central bank raised rates by 75 basis points last week, the biggest increase in 28 years, while hinting at an equally large rate hike at the next policy meeting in July. Despite decisive Fed action, markets posted their worst weekly performance since March 2020 last week, with the S&P 500 falling almost 6%. The benchmark remains in bearish territory with the tech-heavy Nasdaq having fallen around 23% and 33% below their records, respectively.

Further reading:

Dow jumps 600 points even as experts warn that recession could lead to further selling of stocks (TAUT)

The stock market could crash another 20% if the US plunges into recession – these industries are most at risk (TAUT)

Stocks post worst week since March 2020 amid ‘deafening’ recession worries (TAUT)

How to invest during a recession: Why experts choose these stocks during turbulent economic times (TAUT)

.

See also  Wall Street Week Ahead: Destroyed peak inflation hopes are more painful for stocks and bonds

LEAVE A REPLY

Please enter your comment!
Please enter your name here