Dow plunges 1,000 points, wiping out Wednesday’s surge

Fed Chair Jerome Powell helped reassure investors Wednesday afternoon, saying that future rate hikes larger than 50 basis points are “not something the [Fed] is actively considering,” leading to a bullish surge in markets. The major indexes all grew by around 3%, and the S&P 500 and Dow had their best days in nearly two years.

But investors woke up with a binge-trading hangover Thursday, and markets catapulted into the red as they further digested the Fed news.

The Dow dropped 1,000 points or 2.9%, the S&P 500 fell 3.3% and the Nasdaq Composite tumbled 4.6%.

Even without future interest rate hikes of 75 basis points, quantitative tightening presents a threat to economic growth and to markets that have become used to accommodating Fed policy. “There may be some pain associated with getting back to that, but the big pain is in not dealing with inflation and allowing it to become entrenched,” Powell warned during his Wednesday afternoon press conference.

Large tech stocks led losses Thursday. Big tech is particularly vulnerable to rising rates because their promise of future innovation and subsequent earnings are valuable to investors.

Facebook parent company Meta fell by nearly 6%, Amazon was down 6.4%, and Google parent company Alphabet toppled 5.3%.

“In all policy moves, however, there are negative consequences, which hopefully are muted, and are less impactful than the issue that is being addressed,” wrote Rick Rieder, BlackRock’s chief investment officer of global fixed income in a note Wednesday. “The consequences we risk in policy tightening are potential recession, potential lost jobs and wages, and clearly tighter financial conditions that will weigh on virtually all financial markets.”

E-commerce stocks also dropped precipitously after reporting weak earnings for the first quarter of the year. Etsy fell by nearly 18% and eBay dropped by about 8%.

New economic data, meanwhile, showed that labor productivity dropped by 7.5% in the first quarter of 2022, its fastest decline since 1947.

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