Dow Slides Nearly 1,000 Points

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U.S. stocks fell sharply, with technology stocks leading the way, as investors assessed the implications of Federal Reserve’s most aggressive tightening of monetary policy in more than two decades.

The S&P 500 dropped 3.4% as losses accelerated in morning trading Thursday. The tech-focused Nasdaq Composite Index plunged 4.6%, and the Dow Jones Industrial Average retreated 2.9%, or 982 points. All three indexes are on track to erase Wednesday’s gains.

In the bond market, the yield on the benchmark 10-year Treasury note rose to 3.06%, from 2.914% Wednesday. Bond prices and yields move in opposite directions.

On Wednesday, central bank officials approved a half-percentage-point interest rate increase, lifting the federal-funds rate to a target range between 0.75% and 1%.

But it was Fed Chairman Jerome Powell who energized markets after he said officials weren’t actively considering raising rates by three-fourths of a percentage point. He instead indicated that additional half-point increases could be warranted at coming meetings.

Mr. Powell’s comments offered relief to investors who had become increasingly fearful that the Fed could raise interest rates too far, too fast and eventually tip the economy into a recession.

By Thursday, investor optimism had begun to wane. Even with a larger interest-rate increase off the table in the coming months, investors are still facing the most aggressive tightening of U.S. monetary policy since 2000—the last time the central bank last raised rates by a half-point.