Wall Street Slumps, Erasing a Big Rally From a Day Earlier

May 5, 2022by Damian J. Troise, Associated Press
Wall Street Slumps, Erasing a Big Rally From a Day Earlier
The New York Stock Exchange logo adorns trading posts on the floor, Wednesday, March 16, 2022. (AP Photo/Richard Drew, File)

NEW YORK (AP) — Stocks are slumping on Wall Street, erasing a rally from a day earlier, as markets assess the looming fallout from the Federal Reserve’s stepped-up fight against inflation.

On Wednesday, the Fed raised its benchmark interest rate by half a percentage point as part of an effort to slow consumer borrowing and tamp down inflation, which is at a four-decade high. The market rallied when Fed Chair Jerome Powell dismissed the possibility the Fed could resort to a more aggressive three-quarters point hike in the future.

Now, traders are starting to fret more about the impact of the Fed’s moves to dampen demand and slow the economy.

“The Fed is between a rock and a hard place, and because of instant information investors are experiencing both fear and greed at the exact same moment,” said Sam Stovall, chief investment strategist at CFRA.

The S&P 500 fell 3.7% as of 11:55 a.m. The Dow Jones Industrial average stumbled 1,100 points, or 3.3%, to 32,945 and the Nasdaq lost 5%.

Bond yields resumed their upward march, which will send mortgage rates higher. The yield on the 10-year Treasury rose sharply, to 3.09%, from 2.92% a day earlier.

The Fed’s aggressive shift to raise interest rates has investors worrying about whether it can pull off the delicate dance to slow the economy enough to halt high inflation but not so much as to cause a downturn. The pace and size of interest rate increases is being scrutinized closely on Wall Street.

“Investors realized that by the Fed continuing to take a very measured approach, it could actually allow inflation to remain out of control,” Stovall said.

The latest move by the Fed to raise interest rates by a half-percentage point had been widely expected. Markets steadied this week ahead of the policy update, but Wall Street was concerned the Fed might elect to raise rates by three-quarters of a percentage point in the months ahead. Powell eased those concerns, saying the central bank is “not actively considering” such an increase.

The central bank also announced that it will start reducing its huge $9 trillion balance sheet, which consists mainly of Treasury and mortgage bonds, starting June 1. Those large holdings are a policy tool the Fed uses to keep long-term interest rates, like those on mortgages, low.

The Bank of England on Thursday raised its benchmark interest rate to the highest level in 13 years, its fourth rate hike since December as U.K. inflation runs at 30-year highs.

Energy markets remain volatile as the conflict in Ukraine continues and demand remains high amid tight supplies of oil. European governments are trying to replace energy supplies from Russia and are considering an embargo. OPEC and allied oil-producing countries decided Thursday to gradually increase the flows of crude they send to the world.

Higher oil and gas prices have been contributing to the uncertainties weighing on investors as they try to assess how inflation will ultimately impact businesses, consumer activity and overall economic growth.

The latest corporate earnings reports are also being closely watched by investors trying to get a better picture of inflation’s impact on the economy. Cereal maker Kellogg rose 3.8% after reporting encouraging financial results. Etsy stumbled 17.2% after giving a weak forecast.

Twitter rose 3.6% after Tesla CEO Elon Musk said he had secured more backing for his bid to take over the company.

Technology companies had some of the biggest losses and weighed down the broader market, in a reversal from the solid gains they made a day earlier. Internet retail giant Amazon slumped 7% and Google’s parent company fell 5.1%.

A+
a-
  • Nasdaq
  • stocks
  • Wall Street
  • In The News

    Health

    Voting

    Wall Street

    Trump's Social Media Company Will Go Public After Merger With Shell Company Approved

    NEW YORK (AP) — Donald Trump is returning to the stock market. Shareholders of Digital World Acquisition Corp., a publicly... Read More

    NEW YORK (AP) — Donald Trump is returning to the stock market. Shareholders of Digital World Acquisition Corp., a publicly traded shell company, approved a deal to merge with the former president’s media business in a Friday vote. That means Trump Media & Technology Group, whose... Read More

    Inflation Slowed Further in December as Economic 'Soft Landing' Moves Into Sharper Focus

    WASHINGTON (AP) — The Federal Reserve’s preferred inflation gauge cooled further last month even as the economy kept growing briskly, a... Read More

    WASHINGTON (AP) — The Federal Reserve’s preferred inflation gauge cooled further last month even as the economy kept growing briskly, a trend sure to be welcomed at the White House as President Joe Biden seeks re-election in a race that could pivot on his economic stewardship. Friday’s... Read More

    Americans' Economic Outlook Brightens as Inflation Slows and Wages Outpace Prices

    WASHINGTON (AP) — After an extended period of gloom, Americans are starting to feel better about inflation and the economy —... Read More

    WASHINGTON (AP) — After an extended period of gloom, Americans are starting to feel better about inflation and the economy — a trend that could sustain consumer spending, fuel economic growth and potentially affect President Joe Biden's political fortunes. A measure of consumer sentiment by the University of Michigan has... Read More

    Storied US Steel to Be Acquired for Over $14B by Nippon Steel

    U.S. Steel, the Pittsburgh steel producer that played a key role in the nation's industrialization, is being acquired by Nippon... Read More

    U.S. Steel, the Pittsburgh steel producer that played a key role in the nation's industrialization, is being acquired by Nippon Steel in an all-cash deal valued at approximately $14.1 billion. The transaction is worth about $14.9 billion when including the assumption of debt. The combined company... Read More

    Wall Street Rises on Hopes for Rate Cuts, as Dow Ticks Toward Another Record

    NEW YORK (AP) — Wall Street is ticking higher Thursday following its big rally the day before on excitement that... Read More

    NEW YORK (AP) — Wall Street is ticking higher Thursday following its big rally the day before on excitement that several cuts to interest rates may indeed be coming next year. The S&P 500 was 0.3% higher in morning trading and within 1.5% of its all-time... Read More

    Wall Street Rises After Corporate Profits Top Forecasts and Oil Prices Sink

    NEW YORK (AP) — Wall Street is rising Tuesday after Verizon, General Electric and other big companies reported fatter profits... Read More

    NEW YORK (AP) — Wall Street is rising Tuesday after Verizon, General Electric and other big companies reported fatter profits for the summer than expected. The S&P 500 was 0.8% higher in midday trading and on track to break a five-day losing streak. The Dow Jones... Read More

    News From The Well
    scroll top