Investors are selling shares as recession fears loom, and the S&P 500 and Nasdaq Composite plunged on Thursday. The Federal Reserve has been taking aggressive actions to stem inflation and discourage excessive borrowing. After a five percent increase in interest rates in May, the Fed is now moving away from its easy-money policy and increasing borrowing costs. The Federal Reserve’s June meeting minutes are expected to show a 75 basis point hike.
The selloff on Wednesday was driven by growing concerns about a recession. Federal Reserve Chair Jerome Powell has indicated that a gradual hike of 75 basis points is the best way to ensure that the economy is not in recession. But higher rates could also snuff out growth prospects in the world’s biggest economy, which is already flirting with recession. Analysts predict that stocks will decline 4% and the S&P 500 will fall over three thousand points.
The S&P 500 is down more than 20% from its high and has hit new lows for the year 2022. Rising interest rates are a blunt instrument that can choke an economy. The S&P 500 fell over 20% from its peak and is now 23.6% below its early year record. This will likely send the index back to its early-year levels in late 2020, wiping out the first half of the year’s best performance on Wall Street since the turn of the millennium.
A rise in unemployment rates may also be a contributing factor. Despite the rising unemployment rate, the Fed’s bond-buying program will soon end, putting the economy on the brink of recession. Further, the drop in new home construction in May is a further blight on the economy. Moreover, economists are skeptical about Powell’s plan to increase rates this year.
Energy companies were down on Tuesday, despite the low oil price. Tesla shares fell after posting their lowest quarterly sales numbers since last fall. The S&P 500 and Dow are down nearly 20% and 17% since the start of the year, pointing to an imminent recession. Moreover, consumer sentiment is down, while inflation remains above the Federal Reserve’s 2% target. Meanwhile, layoffs in technology and real estate have risen significantly.
The Dow Jones Industrial Average and the Nasdaq composite fell on Friday, and the S&P 500 tumbled 4.1% and 4% respectively. The S&P 500 closed lower for a third consecutive week, with all three major indexes dropping at the same time. The S&P 500 ended three quarters lower on Friday, which was the worst start to a bear market since January.
The NYSE and Nasdaq saw a mixed day on Thursday, with technology companies falling the most. Apple, Netflix, and Microsoft closed down more than 1%. Bitcoin, the most popular cryptocurrency, is also plummeting, trading below $21,000 and down more than 50% from its June 2016 high. These developments are likely to cause even more uncertainty and instability. If the United States stays in recession until 2022, it will face a prolonged period of mediocre economic conditions.