Dow hits 2022 low as market sells on recession fears
Dow hits 2022 low as market sells on recession fears

Dow hits 2022 low as market sells on recession fears

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NEW YORK (AP) – Stocks fell across the globe on Friday amid growing signs the global economy is weakening just as central banks are stepping up 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 was down 1.7%, near its 2022 low in mid-June, while the Nasdaq was down 1.8%.

Selling closed a tough 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 interest rates on mortgages and other types of loans, held at multi-year highs.

European stocks fell as sharply or more after preliminary data showed business activity suffered its worst monthly contraction since early 2021. Adding to the pressure was a new plan announced in London to cut taxes, which sent UK yields soaring as it could eventually force its central bank to raise rates. sharper flowers.

The Federal Reserve and other central banks around the world have aggressively raised interest rates this week in hopes of easing high inflation, with bigger hikes promised for the future. But such moves also put the brakes on their economies, threatening a recession as growth slows around the world. In addition to Friday’s disappointing data on European business activity, a separate report showed US activity was also still shrinking, although not as badly as in previous months.

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“Financial markets are now fully absorbing the Fed’s strong message that there will be no pullback from the inflation fight,” Douglas Porter, chief economist at BMO Capital Markets, wrote in a research report.

US crude prices fell 5.7% to their lowest since the start of the year on concerns that a weaker global economy will burn less fuel. Cryptocurrency prices have also fallen sharply as higher interest rates tend to hit the hardest on the investments that look the most expensive or the riskiest.

Even gold is falling in defeat worldwide, as higher-yielding bonds make investments that don’t pay interest look less attractive. Meanwhile, the US dollar has moved up sharply against other currencies. That could hurt profits for US companies that have a lot of business overseas, and put a strain on the finances of most developing countries.

The S&P 500 fell 64.76 points to 3,693.23, its fourth straight decline. The Dow, which at one point fell more than 800 points, lost 486.27 points to close at 29,590.41. The Nasdaq fell 198.88 points to 10,867.93.

Shares of smaller companies are even worse off. The Russell 2000 fell 42.72 points, or 2.5%, to close at 1,679.59.

More than 85% of shares 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 raised its benchmark interest rate, which affects many consumer and business loans, to a range of 3% to 3.25%. It was almost zero at the start of the year. The Fed also released forecasts showing the benchmark interest rate could be 4.4% by the end of the year, a full point higher than envisaged in June.

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Treasury yields have climbed to multi-year 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 affects mortgage rates, fell to 3.69% from 3.71%.

Goldman Sachs strategists say the majority of their clients now see a “hard landing” pulling the economy down sharply as inevitable. The only question for them is the timing, magnitude, and duration of the potential recession.

Higher interest rates hurt all types of investments, but stocks can remain stable as long as company profits grow strongly. The problem is that many analysts are starting to cut their forecasts for upcoming earnings due to higher rates and concerns about a possible recession.

“Increasingly, market psychology has shifted from concerns over inflation to concerns that, at the very least, corporate profits will decline as economic growth slows demand,” said Quincy Krosby, head of global strategy for LPL Financial.

In the US, the job market remains very solid, and many analysts think the economy grew in the summer quarter after shrinking in the first six months of the year. But encouraging signs also suggest that the Fed may have to raise interest rates even higher to get the cooling needed to bring inflation down.

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Several key areas of the economy have weakened. Mortgage rates have hit a 14-year high, causing existing home sales to fall 20% in the past year. But other areas that do best when fares are low also hurt.

In Europe, meanwhile, an already fragile economy is facing the effects of war on its eastern front following Russia’s invasion of Ukraine. The European Central Bank raised its key interest rate to fight inflation even as the region’s economy is expected to plunge into recession. And in Asia, China’s economy is competing with stringent measures meant to limit COVID infections that are also hurting businesses.

While Friday’s economic report was disappointing, some on Wall Street saw it as enough to convince the Fed and other central banks to soften their stance on rate hikes. So they only reinforce fears that interest rates will continue to rise in the face of an already slowing economy.


Economics Writers Christopher Rugaber and Business Writers Joe McDonald and Matt Ott contributed to this report.

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