Stocks plunged Thursday amid lingering concerns of a recession, wiping out the big gains of a day earlier that followed the Federal Reserve’s decision to raise interest rates to curb inflation.
The tech-heavy Nasdaq lost nearly 5%, and the S&P 500 plummeted more than 3.5%, wiping out the gains from Wednesday that was the biggest rally Wall Street has seen in nearly two years.
The Dow Jones Industrial Average fell 1,063 points, or 3.1%, closing at 32,997 points for its worst day since 2020. The losses deepened the market’s slump for the year.
The steep dive reflected traders’ worries that the higher interest rates the Fed is using in its fight against inflation will slow the economy.
The yield on the 10-year Treasury note rose to 3.04, its highest level since 2018.
Rising yields are sure to put upward pressure on mortgage rates, which are already at their highest level since 2009. The 30-year fixed-rate mortgage averaged 5.27% for the week ending Thursday, up from 5.10% the week before, according to Freddie Mac.
The stock market’s wild fluctuations and overall losses this year could compound Democrats’ midterm election challenges, in what was already promising to be a tough year for the White House.
The next major report on the economy comes Friday when the Labor Department will release its report on employment for April.
The U.S. economy contracted by 1.4% in the first quarter, leading to worries about a recession amid inflation that has reached a 40-year high of 8.5%. The general definition of a recession is two consecutive quarters of negative growth.
Traders showed concerns that inflation is out of control, and that the Fed might need to take more drastic steps to tame it, despite assurances by Fed Chairman Jerome H. Powell. They were also digesting mixed earnings reports, Russia’s war against Ukraine, and lingering problems from the pandemic.
Wednesday’s rally was spurred by the Fed’s decision to raise its benchmark interest rate by 50 basis points, as expected. And Mr. Powell said the central bank is “not actively considering” a larger rate hike.
But traders on Thursday were starting to fret more about the impact of the Fed’s moves to dampen demand and slow the economy.
“The Fed is between a rock and a hard place, and because of instant information investors are experiencing both fear and greed at the exact same moment,” said Sam Stovall, chief investment strategist at CFRA.
The Fed’s aggressive shift to raise interest rates has investors worrying about whether it can pull off the delicate dance to slow the economy enough to halt high inflation but not so much as to cause a downturn. The pace and size of interest rate increases are being scrutinized closely on Wall Street.
“Investors realized that by the Fed continuing to take a very measured approach, it could actually allow inflation to remain out of control,” Mr. Stovall said.
Tech stocks suffered some of the biggest losses of the day. Google-parent Alphabet, Apple, Microsoft, Meta, Tesla and Amazon all fell between 4.3% and 8.3%.
• This story is based in part on wire service reports.