Dow Hits 2022 Low on Recession Fears 09/23 16:00
Stocks tumbled worldwide Friday on mounting signs the global economy is
weakening just as central banks raise the pressure even more with additional
interest rate hikes.
(AP) -- Stocks tumbled worldwide Friday on mounting signs the global economy
is weakening just as central banks raise the 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 fell 1.7%, close to its 2022 low set in mid-June,
while the Nasdaq slid 1.8%.
The selling capped another rough 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 rates on mortgages and other kinds of
loans, held at multiyear highs.
European stocks fell just as sharply or more after preliminary data there
suggested business activity had its worst monthly contraction since the start
of 2021. Adding to the pressure was a new plan announced in London to cut
taxes, which sent U.K. yields soaring because it could ultimately force its
central bank to raise rates even more sharply.
The Federal Reserve and other central banks around the world aggressively
hiked interest rates this week in hopes of undercutting high inflation, with
more big increases promised for the future. But such moves also put the brakes
on their economies, threatening recessions as growth slows worldwide. Besides
Friday's discouraging data on European business activity, a separate report
suggested U.S. activity is also still shrinking, though not quite as badly as
in earlier months.
"Financial markets are now fully absorbing the Fed's harsh message that
there will be no retreat from the inflation fight," Douglas Porter, chief
economist at BMO Capital Markets, wrote in a research report.
U.S. crude oil prices slid 5.7% to their lowest levels since early this year
on worries that a weaker global economy will burn less fuel. Cryptocurrency
prices also fell sharply because higher interest rates tend to hit hardest the
investments that look the priciest or the most risky.
Even gold fell in the worldwide rout, as bonds paying higher yields make
investments that pay no interest look less attractive. Meanwhile the U.S.
dollar has been moving sharply higher against other currencies. That can hurt
profits for U.S. companies with lots of overseas business, as well as put a
financial squeeze on much of the developing world.
The S&P 500 fell 64.76 points to 3,693.23, its fourth straight drop. The
Dow, which at one point was down more than 800 points, lost 486.27 points to
close at 29,590.41. The Nasdaq fell 198.88 points to 10,867.93.
Smaller company stocks did even worse. The Russell 2000 fell 42.72 points,
or 2.5%, to close at 1,679.59.
More than 85% of stocks 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 lifted its benchmark rate, which affects
many consumer and business loans, to a range of 3% to 3.25%. It was at
virtually zero at the start of the year. The Fed also released a forecast
suggesting its benchmark rate could be 4.4% by the year's end, a full point
higher than envisioned in June.
Treasury yields have climbed to multiyear 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 influences
mortgage rates, slipped to 3.69% from 3.71%.
Goldman Sachs strategists say a majority of their clients now see a "hard
landing" that pulls the economy sharply lower as inevitable. The question for
them is just on the timing, magnitude and length of a potential recession.
Higher interest rates hurt all kinds of investments, but stocks could stay
steady as long as corporate profits grow strongly. The problem is that many
analysts are beginning to cut their forecasts for upcoming earnings because of
higher rates and worries about a possible recession.
"Increasingly, market psychology has transitioned from concerns over
inflation to worries that, at a minimum, corporate profits will decline as
economic growth slows demand," said Quincy Krosby, chief global strategist for
In the U.S., the jobs market has remained remarkably solid, and many
analysts think the economy grew in the summer quarter after shrinking in the
first six months of the year. But the encouraging signs also suggest the Fed
may have to jack rates even higher to get the cooling needed to bring down
Some key areas of the economy are already weakening. Mortgage rates have
reached 14-year highs, causing sales of existing homes to drop 20% in the past
year. But other areas that do best when rates are low are also hurting.
In Europe, meanwhile, the already fragile economy is dealing with the
effects of war on its eastern front following Russia's invasion of Ukraine. The
European Central Bank is hiking its key interest rate to combat inflation even
as the region's economy is already expected to plunge into a recession. And in
Asia, China's economy is contending with still-strict measures meant to limit
COVID infections that also hurt businesses.
While Friday's economic reports were discouraging, few on Wall Street saw
them as enough to convince the Fed and other central banks to soften their
stance on raising rates. So they just reinforced the fear that rates will keep
rising in the face of already slowing economies.