Stocks tumbled on Friday to cap a brutal week for financial markets as surging interest rates and foreign currency turmoil heightened fears of a global recession.
The Dow Jones Industrial Average tumbled 486.27 points, or 1.62%, to 29,590.41. The S&P 500 slid 1.72% to 3,693.23, while the Nasdaq Composite dropped 1.8% to 10,867.93.
The Dow notched a new low for the year and closed below 30,000 for the first time since June 17. The 30-stock index fell 19.9% on an intraday basis and flirted with bear market territory, at one point plummeting more than 826 points.
All the major averages capped their fifth negative week in the last six, with the Dow giving up 4%. The S&P and Nasdaq shed 4.65% and 5.07%, respectively. It marked the fourth negative session in a row for the major averages as the Fed on Wednesday enacted another super-sized rate hike of 75 basis points and indicated it would do another at its November meeting.
“The market has been transitioning clearly and quickly from worries over inflation to concerns over the aggressive Federal Reserve campaign,” said Quincy Krosby of LPL Financial. “You see bond yields rising to levels we haven’t seen in years — it’s changing the mindset to how does the Fed get to price stability without something breaking.”
The British pound hit a fresh more than three-decade low against the U.S. dollar after a new U.K. economic plan that included a slew of tax cuts rattled markets that are fearing inflation above all right now. Major European markets lost 2% on the day.
“This is a global macro mess that the market is trying to sort out,” Krosby said.
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Bond yields soared this week following the Fed’s actions, with the 2-year and 10-year Treasury rates hitting highs not seen in over a decade.
Goldman Sachs cut its year-end S&P 500 target because of rising rates, predicting at least a 4% downside from here.
Stocks positioned to suffer the most in a recession led the week’s losses with the S&P 500’s consumer discretionary sector falling 7%. Energy slumped 9% as oil prices dropped. Growth stocks including big technology names Apple, Amazon, Microsoft and Meta Platforms fell on Friday.
“Based on our client discussions, a majority of equity investors have adopted the view that a hard landing scenario is inevitable and their focus is on the timing, magnitude, and duration of a potential recession and investment strategies for that outlook,” wrote Goldman Sachs’ David Kostin in a note to clients as he cut his outlook.
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