Wall Street’s main indexes all tumbled to close well down on Friday, as rattled investors continued to reposition themselves amid fears the Federal Reserve’s hawkish rate policy will help tip the American economy into recession.
The Dow narrowly avoided ending more than 20% lower than its Jan. 4 record all-time closing peak of 36,799.64 points, meaning the blue-chip index did not attain a bear market label, according to a widely used definition.
The S&P 500 and the Nasdaq are already in a bear market.
The Dow Jones Industrial Average plunged 486.27 points, or 1.6%, to 29,590.41, the S&P 500 was down 64.75 points, or 1.7%, and the Nasdaq Composite was down nearly 200 points, or 1.8%.
After enjoying hefty gains for last two years, Wall Street has been rocked in 2022 by worries about a host of issues including the Ukraine conflict, the energy crisis in Europe, China’s COVID-19 flare ups, and tightening financial conditions across the globe.
A half dozen central banks, including in the United States, Britain, Sweden, Switzerland and Norway, delivered rate hikes this week to fight inflation, but it was the Fed’s signal that it expects high US rates to last through 2023 that caught markets off guard.
The central bank raised rates by a widely expected 75 basis points on Wednesday and signaled a longer trajectory for policy rates, dashing hopes that the Fed expects to get inflation under control in the near term.
“The most recent Fed actions leave us with the feeling that the end of the rate rises is not near,” said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, NJ.
“There is very little positive news right now and it could lead to a sort of a final selloff … it’s certainly possible that we could be approaching the near-term lows.”
Dire outlooks from a handful of companies – most recently FedEx and Ford Motor — have also added to woes in a seasonally weak period for markets.
Goldman Sachs cut its year-end 2022 target for the benchmark S&P 500 index by about 16% to 3,600 points, a 2.5% decline from current levels.
Technology and growth stocks slid with megacap names including Alphabet, Apple, Amazon, Microsoft and Tesla all down more than 1%.
Costco Wholesale shed 2.4% after the big-box retailer reported a fall in its fourth-quarter profit margins.
The CBOE volatility index, also known as Wall Street’s fear gauge, rose to 28.72 points.