Stocks tumbled worldwide Friday on mounting signs the global economy is weakening just as central banks raise the pressure even more with additional interest rate hikes.
The Dow Jones Industrial Average fell 1.6%, closing at its lowest level since late 2020. The S&P 500 fell 1.7%, close to its 2022 low set in mid-June, while the Nasdaq slid 1.8%.
The selling capped another rough week on Wall Street, leaving the major indexes with their fifth weekly loss in six weeks.
Energy prices closed sharply lower as traders worried about a possible recession. Treasury yields, which affect rates on mortgages and other kinds of loans, held at multiyear highs.
European stocks fell just as sharply or more after preliminary data there suggested business activity had its worst monthly contraction since the start of 2021. Adding to the pressure was a new plan announced in London to cut taxes, which sent U.K. yields soaring because it could ultimately force its central bank to raise rates even more sharply.
The S&P 500 fell 64.76 points to 3,693.23, its fourth straight drop. The Dow, which at one point was down more than 800 points, lost 486.27 points to close at 29,590.41. The Nasdaq fell 198.88 points to 10,867.93.
Smaller company stocks did even worse. The Russell 2000 fell 42.72 points, or 2.5%, to close at 1,679.59.
More than 85% of stocks in the S&P 500 closed in the red, with technology companies, retailers and banks among the biggest weights on the benchmark index.
The Federal Reserve on Wednesday lifted its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%. It was at virtually zero at the start of the year. The Fed also released a forecast suggesting its benchmark rate could be 4.4% by the year’s end, a full point higher than envisioned in June.
Treasury yields have climbed to multiyear highs as interest rates rise. The yield on the 2-year Treasury, which tends to follow expectations for Federal Reserve action, rose to 4.20% from 4.12% late Thursday. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, slipped to 3.69% from 3.71%.
Goldman Sachs strategists say a majority of their clients now see a “hard landing” that pulls the economy sharply lower as inevitable. The question for them is just on the timing, magnitude and length of a potential recession.
Higher interest rates hurt all kinds of investments, but stocks could stay steady as long as corporate profits grow strongly. The problem is that many analysts are beginning to cut their forecasts for upcoming earnings because of higher rates and worries about a possible recession.
“Increasingly, market psychology has transitioned from concerns over inflation to worries that, at a minimum, corporate profits will decline as economic growth slows demand,” said Quincy Krosby, chief global strategist for LPL Financial….