(Bloomberg)—Stocks tumbled around the globe as recession fears resurfaced, with the Federal Reserve struggling to get on top of inflation that’s proved more persistent and widespread than officials anticipated.
The relief rally that followed the Fed’s decision on Wednesday evaporated, with the majority of companies in the S&P 500 pushing lower. Big tech was knocked down as Treasury yields surged. Economic barometer Kroger Co. plunged after the supermarket chain said higher costs hurt margins.
This morning the S&P was down 2.9%, the Dow was down 2.3% and the Nasdaq was down 3.5%.
Declaring that it’s essential to tame inflation, Jerome Powell engineered the Fed’s biggest rate increase since 1994 and held out the distinct possibility of another jumbo hike in July. While the Fed chief sought to soften the blow of the 75-basis-point boost by saying he didn’t expect moves of that size to become the norm, he effectively admitted that a downturn was possible.
- “Our main takeaway from the Fed is hawkish—meaning the Fed is going to accept recession risk to deliver below-trend economic growth,” wrote Dennis DeBusschere, the founder of 22V Research. “Powell made it clear that getting inflation lower is critical and ‘the worst mistake would be to fail to restore price stability.’”
- “The market got what it wished for, but maybe, just maybe, hiking 75 bps into a rapidly weakening economy isn’t the best idea,” wrote Peter Tchir, head of macro strategy at Academy Securities.
- “The Band-Aid wasn’t ripped off and, if anything, greater uncertainty about the magnitude of next moves has increased,” said Neil Campling, head of tech, media and telecom research at Mirabaud Securities
On the economic front, new US home construction dropped in May, highlighting the impacts of ongoing supply chain challenges and sinking sales as mortgage rates rise. Applications unemployment insurance were little changed last week.
Elsewhere, investors dumped European bonds and the franc rallied after a surprise Swiss rate hike. The pound rose as the Bank of England raised rates and signaled it’s prepared to unleash larger moves if needed.