NEW YORK — Stocks fell on Wall Street and European markets on Thursday as investors began to worry more and more as the Federal Reserve and other central banks were willing to risk a recession to contain inflation.
SThe &P 500 is down 2.5%, with more than 90% of stocks in the benchmark index closed in the red. The Dow Jones Industrial Average fell 2.2% and the Nasdaq composite index fell 3.2%. The wide slide erased all weekly gains for the major indices.
European equities fell sharply as the German DAX fell 3.3%.
The selloff came as central banks in Europe raised interest rates after the US Federal Reserve raised interest rates again, emphasizing that interest rates must be higher than previously expected to rein in inflation.
“This coordinated tightening by the central bank – stocks don’t tend to do well in this environment,” said Willie Delwiche, investment strategist at All Star Charts.
Market losses were common in the US, but tech stocks were the biggest weight on the S Index.&P 500. The benchmark index fell 99.57 points to 3,895.75.
The Dow slipped 764.13 points to 33,202.22, while the technology-heavy Nasdaq fell 360.36 points to 10,810.53.
Small company stocks also fell. The Russell 2000 index slipped 45.85 points, or 2.5%, to close at 1,774.61.
The Fed raised its short-term interest rate by half a point on Wednesday for its seventh increase this year. The European Central Banks on Thursday followed the European Central Bank, the Bank of England and the Swiss National Bank by raising their core lending rates by half a percentage point on Thursday.
While the Fed is slowing the pace of rate hikes, the central bank has signaled that it expects rates to be higher than previously forecast over the next few years. This has disappointed investors who had hoped that the latest signs of inflation easing somewhat will persuade the Fed to lift some of the brake pressure it has placed on the US economy.
The federal funds rate is in the range of 4.25% to 4.5%, a 15-year high. Fed policymakers predict that the central bank’s interest rate will reach the 5% to 5.25% range by the end of 2023. Its forecasts do not require a rate cut before 2024.
The yield on the two-year Treasury note, which closely follows expectations of the Fed’s moves, rose to 4.24% from 4.21% late Wednesday. The 10-year Treasury bond yield, which affects mortgage rates, decreased from 3.48% to 3.45%.
Quarterly Treasury yield fell to 4.31%, but remained above 10-year Treasury. This is known as a reversal and is considered a strong warning that the economy may be headed for recession.
“The (stock market) response now takes into account a recession and dismisses the possibility of a ‘soft/soft’ landing,” said Quincy Krosby, chief global strategist at LPL Financial, that Fed Chairman Jerome Powell brought up in a speech last month.
Delwiche said the prospect of more Fed rate hikes raises Wall Street’s concerns about how corporate earnings could move forward in a recession.
“(Inflation) peaked, will peak, peaked, well, that’s not the story,” he said. “Now the story is how does the economy stop? How are the earnings holding up?
The central bank is struggling to keep inflation down while the pockets of the economy, including employment and consumer spending, remain strong. This has made it difficult to rein in high prices on everything from food to clothing.
On Thursday, the government reported that the number of Americans applying for unemployment benefits fell last week, a sign that the labor market remains strong. Meanwhile, another report showed retail sales fell in November. This pullback came after a sharp increase in spending in October.
Like the Fed, central bank officials in Europe said inflation has yet to stabilize and more rate hikes are to come.
European Central Bank President Christine Lagarde said at a press conference, “We are in a long game.
Elaine Kurtenbach and Matt Ott contributed to this report.