February 1, 2023

Dow plunges more than 1,000 points in Wall Street’s worst day of the year

3 min read

Fed Chair Jerome Powell on Wednesday afternoon helped reassure investors that a future rate hike of more than 50 basis points was “nothing.” [Fed] Actively considering, “lRapid growth in markets. All major indices rose about 3%, and the S&P 500 and Dow had their best days in almost two years.

But investors woke up on Thursday with a binge-trading hangover, and markets turned red as they digested the Fed’s news.

All the gains of yesterday vanished by noon and the markets got worse.

The Dow fell 1,120 points, or 3.3 percent, while the S&P 500 fell 3.7 percent. The Nasdaq Composite fell 5.2 percent, its worst day since 2020.

“I’ve been in the market for 25 years and I’ve never seen anything like it,” said Daniel de Martino Booth, CEO and chief strategist at Wall Street and the Federal Reserve research firm Coil Intelligence. “It’s violent, not just unstable.”

De Martino Booth believes that a massive decline only makes sense if you classify yesterday’s rise as a melting point. “Total markets were ready for the rally and there were probably a lot of people who were short and Had to hurry to cover, today is a reaction, “she said.

Beware of 'melting': 'Analysts say stocks could rise even before they fall.

John Lynch, chief investment officer at America’s Wealth Management, wrote in a note on Thursday that the rapid changes in the market indicate that equity markets have not yet figured out what to do with the Fed. He says the question he needs to answer is not easy: “How can technology and development sustain the market in a sustainable way with the Fed’s acknowledgment of inflation and commitment to higher rates?”

Even without a 75 basis point increase in interest rates in the future, Quantitative hardness presents a danger. For economic growth and markets that are accustomed to adjusting Fed policy. Powell warned during a press conference Wednesday afternoon that “there may be some pain associated with returning to it, but the biggest pain is dealing with inflation and not letting it get stronger.”

Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research, said the market decline, as of today, was “extraordinary” and reminiscent of 2008 and 2009. But economic conditions are much stronger than they were at the beginning of the Great Depression, which has left analysts scrambling to find a catalyst.

So what changed between last night and today that forced investors to turn 180 degrees? “Tea leaves are hard to read right now,” Frederick said. “But it could be a sign of market capitalization, where investors panic to the point of throwing in the towel.” “Capitalization could also indicate that we have reached the bottom of the market,” he added.

Large tech stocks suffered losses on Thursday. BigTech is particularly vulnerable to rising rates because of its promise of future innovation and the resulting return on investment.

Facebook’s parent company Meta fell nearly 6.8 percent, Amazon 7.6 percent and Google’s parent company Alphabet fell 4.7 percent.

“All policy moves, however, have negative consequences, which are expected to be muted, and less effective than the issue that is being addressed,” wrote Rick Ryder, BlackRock’s chief investment officer for global fixed income. Wrote in a note on Wednesday. “The consequences we are facing as a result of tightening policy are potential recession, potentially job losses and wages, and obviously tight financial conditions that will affect virtually all financial markets. “

Why can relief at the Federal Reserve be short-lived?

E-commerce stocks also declined sharply after reporting weak earnings in the first quarter of the year. Etsy fell about 17% and eBay fell about 12%.

Meanwhile, new economic data shows that labor productivity fell by 7.5% in the first quarter of 2022, the sharpest decline since 1947.

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