June 25, 2022

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Stocks drop accelerating amid fears of renewed recession

Stocks drop accelerating amid fears of renewed recession

US stocks sank Thursday as investors weighed the potential economic costs of the Federal Reserve’s ongoing fight against inflation.

The S&P 500 was down more than 3.4% as of 11 a.m. in New York, and then reversed course. It rose 1.5% on Wednesday. The Nasdaq Composite is down 4%, and the Dow Jones is down more than 800 points, or 2.6%. The 10-year Treasury yield fell to about 3.34%.

Stocks, which initially moved to the upside after the Fed First hike of 75 basis points since 1994 Turning around on Wednesday, traders assessed the possibility that the central bank’s moves to cut inflation would lead to a deeper decline in economic activity.

Thursday’s FOMC Summary of Economic Outlook (SEP) showed that the same committee now sees a less rosy economy ahead as it continues to raise interest rates. The FOMC now expects the unemployment rate to reach 3.7% by the end of this year (versus 3.5% in March), and real GDP will rise only 1.7% (versus the 2.8% increase seen previously). The Fed also raised its year-end core inflation forecast and forecast for where the federal funds rate will end in 2022.

Lower growth expectations combined with a more aggressive path to future rate hikes seem to justify some critics’ concerns that the Fed’s window for a “soft landing” is nearly over or has already ended. Federal Reserve Chairman Jerome Powell suggested on Wednesday that a 50 or 75 basis point rate hike would look more like the next central bank meeting in July. While the Fed still expects GDP growth to end in all of 2022, 2023 and 2024 in positive territory, some have suggested that this may be overly optimistic.

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“The Summary Economic Outlook (SEP) and President Powell’s lobbying highlighted the committee that sees an increasingly narrow path to an easy landing, while maintaining that as a baseline,” Matthew Luzzetti, chief US economist at Deutsche Bank, wrote in a note. . “The statement removed references to maintaining a robust labor market where inflation is under control and the SEP predicts that the unemployment rate will eventually rise by about half a percentage point. We continue to expect the Fed to move more aggressively than indicated in the statement. [Wednesday’s] The meeting and that this tightening will lead to a recession in 2023 will lead to a significant rise in the unemployment rate.”

For his part, Powell said that Wednesday The Fed was not looking for a recession To achieve the objectives of the Central Bank to reduce inflation. However, some strategists said whether such an outcome can ultimately be avoided as a byproduct of the Fed’s moves remains a question for markets, and is likely to keep volatility in play.

“Clear and compelling evidence of declining inflation has yet to materialize…” Ideally, this would include stocks that are showing signs of capitulation, and the basis for a ‘bottom’ is laid,’ Julian Emmanuel, Evercore’s senior managing director, said in a note.

“Even other signals are necessary and sufficient (gasoline price turns and VIX [spikes above 40] On heavy stock volume) from a “bottom”, not necessarily a “bottom” appears, we maintain a balanced exposure,” he added.

NEW YORK, NY – JUNE 14: Traders work on the floor of the New York Stock Exchange (NYSE) on June 14, 2022 in New York City. The Dow was higher in morning trading after Monday’s drop of more than 800 points, sending the market into bearish territory as fears of a possible recession loom. (Photo by Spencer Platt/Getty Images)

moving

Winners

  • Twitter (TWTR) Shares were slightly higher Thursday morning, bucking the broader market trend ahead of Elon Musk’s highly anticipated comprehensive meeting with the social media company’s employees later in the day. Details of the meeting will be closely watched for indications of whether Musk intends to go ahead with the deal to acquire the company at its previously discussed price of $44 billion.

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Backwards

  • Robin Hood (Hood) Stocks were on track to fall again on Thursday amid the recent drop in cryptocurrency prices, and as Wall Street firms hit an increasingly pessimistic tone on the online trading platform’s shares due to mounting regulatory concerns. Bloomberg data showed that Atlantic Equities downgraded the stock to UnderWise from neutral on Wednesday and lowered its target price to a Wall Street low of $5 a share.

  • Adobe (ADBE) Shares tumbled ahead of the company’s fiscal second-quarter earnings report, which is due to be released Thursday after the market closes. Consensus analysts see the software company earning adjusted earnings of $3.31 per share on revenue of $4.35 billion.

  • beyond meat (BYND) Shares gave up their gains on Thursday after rising 14% the previous day amid a rebound in the broader markets, and after the company’s prices rose. announce Expanded availability of retail outlets. Beyond’s stock is down more than 3% in early trading.

This post will be updated.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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