4:07pm: Tesla stock has another bumpy day
The Dow closed Thursday down 740 points, 2.4%, at 29,298, the Nasdaq Composite tumbled 4.1%, 453 points, to 10,646 and the S&P 500 lost 123 points, 3.3%, to 3,667.
The broad selloff came a day after the Fed raised interest rates by 75 basis points, its biggest hike since 1994. Despite an initial rally Wednesday afternoon following the announcement, those gains were lost and then some.
The Nasdaq Composite and S&P 500 are each in bear market territory, down about 24% and 34% from their all-time highs. The Dow is nipping at their heels, down roughly 19%. For the blue-chip index, Thursday marked the first session since January 2021 that it closed below 30,000.
“Investor sentiment seems to only be able to focus on one thing at a time,” said Susan Schmidt of Aviva Investors, as reported by CNBC. “Yesterday, the Fed delivered as people expected. It was combating the consumer price index data that was much higher than people expected and raised concerns about inflation being so aggressive. Investors are now remembering that the counter to this is a slowing of the economy.”
Meanwhile, Tesla Inc (NASDAQ:TSLA), the stock of which has struggled mightily in recent weeks amid CEO Elon Musk's will-he-or-won't-he potential purchase of Twitter Inc (NYSE:TWTR), lost ground once again. Its shares fell more than 8% to $639.30.
12.05pm: Recession fears rising
US stocks continued to slide at noon amid concerns that the Fed’s aggressive moves to bring down inflation could lead to a recession.
At midday, the Dow Jones Industrial Average was down 684 points at 29,985 points.
The S&P 500 had dropped 114 points at 3,676 points while the Nasdaq Composite had shed 427 points at 10,673 points.
OANDA senior market analyst Craig Erlam said equity markets were experiencing another day of pain as central banks continued to signal a willingness to sacrifice the economy to get inflation under control.
“Central banks are full of surprises this week whether it's the Fed accepting a recession as the cost of price stability, the SNB raising rates by 50 basis points out of nowhere, the ECB holding an emergency meeting or the BoE seemingly crossing its fingers and hoping 11% inflation goes away on its own,” Erlam said.
CMC Markets chief market analyst Michael Hewson said poor housing starts and building permits data for May had increased concerns that the US economy was on the cusp of a sharp lockdown.
“In the electric vehicle space, we’re seeing heavy falls from the likes of Tesla Inc, Rivian Automotive Inc, and NIO Inc (NYSE:NIO) on concerns that sales will start to slow the course of the next 12 months,” he said.
At noon, Tesla, Rivian, and NIO were down 7%, 9%, and 6% respectively.
10.50am: Proactive North America headlines:
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9.40am: US stocks plunge at the open
US stocks opened lower on Thursday as economic concerns weighed on investor sentiment following the Fed’s decision yesterday to hike the interest rate by 75 basis points.
Just after the open, the Dow Jones Industrial Average had plunged 591 points at 30,077 points, while the S&P 500 shed 85 points at 3,704 points, and the Nasdaq Composite dropped 272 points at 10,828 points.
Meanwhile, new data showed that May housing starts dropped by 14.4% to 1,549,000 from 1,810,000, below the analyst consensus of 1,693,000.
Pantheon Macroeconomics chief economist Ian Shepherdson said both multi-family and single-family activity were unambiguously falling, following the abrupt and rapid drop in new home sales.
“The next few months will bring further, steep, declines in housing construction, given the collapse in mortgage demand,” he said.
“Homebuilders are already carrying 9.0 months of inventory - our chart shows that they have overbuilt since early 2021, seeking to capitalize on the lack of inventory in the existing homes market - so construction has to drop in order to limit the hit to margins.”
Further, weekly jobless claims dropped slightly from 232,000 to 292,000, coming in above the analyst consensus of 217,000.
"The relatively high jobless claims print is due in part to the seasonals; claims likely will dip to about 220K for the next couple weeks, before the numbers start to jump around as a result of the annual automakers’ retooling shutdowns," Shepherdson said.
"The trend in jobless claims has risen from the March lows, but we view those readings with a degree of skepticism; seasonal adjustment issues likely helped push the numbers down. Either way, claims remain extremely low by historical standards."
6.30am: Fed fall-out toxic
US markets were expected to open lower on Thursday as the initial favorable reaction to the US Federal Reserve’s 75 basis point interest rate hike on Wednesday gives way to persistent concerns over the economy.
The aggressive rate hike had been expected and brought some relief then to equities but wider concerns over the outlook for the economy amid an environment of steep interest rate increases have not been displaced, especially as inflation does not look to have peaked.
Futures for the Dow Jones Industrial Average slumped 1.9% in pre-market trading, while those for the broader S&P 500 lost 2.5%, and contracts for the Nasdaq-100 were 2.9% lower.
“The Fed made it clear yesterday that they are willing to risk recession, but they are not willing to let the inflation reading to run hot hence they increased the interest rate by 75 basis points rather than 50 basis points,” said Naeem Aslam chief market analyst at avatrade.com.
He noted that Fed Chairman Jerome Powell made it clear to traders and investors that future monetary policy is very much data-dependent, adding that market players should expect interest rate hikes of between 50 to 75 basis points through the year.
“Looking at the dot-plot, it becomes evidently clear that the Fed is likely to increase the interest rate by 50 basis points in every single meeting until the rest of the year.”
It remains to be seen if the Fed’s interest rate increases will work to dampen inflation, which in May hit a 41-year high. There are also serious concerns about whether the broader economy can withstand the steep rate increases. Many worry that the world’s biggest economy may slide into recession.
“For instance, if one looks at yesterday's retail sales number, it was nothing short of a disaster and made it clear that consumers are reluctant to spend. Americans are dipping into their savings to handle the rising prices, and this is evident by looking at the recent drop in the personal savings rate, which fell to its lowest level since 2008,” Aslam said.
US retail sales fell 0.3% month-on-month in May, disappointingly lower than the 0.2% increase expected.
Futher, Aslam argued that the Fed has a serious reputation problem.
“Firstly, they called inflation a transitory matter, and they allowed it to run hot and failed to scale back on their dovish monetary policy in a timely manner. Now, they are desperate to put a leash on inflation at every cost, and traders are nervous that their desperation to bring inflation lower could lead them to make another policy mistake,” he said.
In energy markets, WTI crude oil futures fell 0.5% to $114.79 a barrel and Brent crude futures lost 0.6% to $117.81.
Contact the author at jon.hopkins@proactiveinvestors.com