Dow plunges more than 1,000 points as ‘rally’ over Fed plan fades

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US stocks plunged sharply in early trading Thursday as investors grow more anxious about the Federal Reserve’s move to slam the brakes on the economy to combat decades-high inflation.

The Dow Jones Industrial Average plunged more than 1,000 points as of 12:15 p.m., or 3.1%.

The selloff was more pronounced in the tech-heavy Nasdaq index, which was down by 5.23%, or more than 600 points. The broad-based S&P 500 fell about 4%.

The brutal selloff occurred just one day after stocks rallied – with the Dow closing more than 900 points higher as investors cheered the Fed’s announcement of a half-percentage point interest rate hike. The increase, while larger than normal, matched the market’s expectation.

Stocks turned sharply higher after Fed Chair Jerome Powell indicated the central bank was not considering an interest rate hike of 75 basis points, or 0.75%.

While Powell’s remarks downplaying the likelihood of a larger interest rate hike triggered a “relief rally”, investors “woke up this morning and said ‘we’re no better off than we were when we woke up yesterday,’” according to Jake Dollarhide, the CEO of Longbow Asset Management.

The selloff came one day after a “relief rally” tied to Fed Chair Jerome Powell’s rate hike remarks.
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“Interest rates are higher, there’s still a war going on in Europe, there’s still global supply chain disruptions – which is all affecting inflation. The question is, can the Fed bring inflation to a halt without destroying the economy? Right now, there’s a lot of people on the fence,” Dollarhide added.

The Fed’s plan will make borrowing money more expensive after years of relaxed policy during the COVID-19 pandemic.

The central bank is attempting to engineer a “soft landing” for the economy by cooling inflation – which touched a whopping 8.5% in March – without hurting the labor market or prompting a recession.

The tech sector was under intense pressure in trading Thursday.
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Bond yields rose higher, with benchmark 10-year Treasury notes jumping to 3.09% from 2.914% — the highest level since late 2018. The uptick means mortgage rates will move higher.

The CBOE Volatility Index, known as Wall Street’s “fear gauge,” surged 24% to 31.62 points.

Concerns about the Fed’s difficult task added to existing overhangs on the market, such as renewed COVID-19 lockdowns in China that could further disrupt supply chains and the ongoing Russia-Ukraine war.

Tech stocks, which experienced blockbuster growth during the COVID-19 pandemic, continued their recent slump on Thursday.

Amazon shares traded more than 7% lower. Meta fell nearly 7% and Apple sank nearly 5%.

“Investors are trying to figure out the proper valuation of the broader stock market, particularly the technology sector, given the Federal Reserve’s withdrawal of stimulus from the economy,” said Zach Stein, chief investment officer at Carbon Collective in California.

Shares of Twitter turned more than 3% higher after Elon Musk disclosed he has secured more than $7 billion in funding toward his takeover bid. But Tesla’s stock was trading lower following a report that Musk planned to serve as Twitter’s interim CEO when the deal closes.

With Post wires