Market Snapshot: Dow plunges about 800 points, sinking back below 30,000 as recession fears rear up

What’s driving markets

The Fed’s three-quarters of a percentage point interest rate hike on Wednesday could be followed by another hike of that magnitude in July, or a half-point increase, according to Fed Chair Jerome Powell at a press conference after the decision was announced. The Fed also cut its economic growth forecast and lifted its unemployment outlook while not going as far as to predict recession.

“Markets now expect the Fed to tighten more aggressively than previously laid out,” said Ross Mayfield, investment strategy analyst at Baird Private Wealth Management, in a note. “Higher interest rates mean a cooler U.S. economy, and therefore a higher chance of recession in the next couple of years. Market selloffs have historically been deeper and longer when associated with a recession, helping explain the downside volatility of the last few days.”

“Further, the recent uptick in inflation can be largely attributed to energy and food — two items that 1) are somewhat out of the Fed’s control; and 2) more directly impact consumer spending and sentiment. High gas prices are weighing on an already-burdened consumer,” he wrote.

Analysts also drew attention to the fact that not only did Powell express concern about last week’s data showing U.S. consumer prices shooting up by 8.6% in the 12 months ending May, but he also noted rising inflation expectations, as measured by the University of Michigan’s consumer sentiment report.

“Inflation expectations data had unnerved committee members,” said Ryan Djajasaputra, economist at Investec. “Powell stated that the Fed needed to take this development seriously.”

See also: As Fed aggressively raises rates, here are 4 takeaways from Jerome Powell’s press conference

Treasury yields turned south as the selloff in equities appeared to spark haven-buying interest. Yields and debt prices move opposite each other.. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.338%
was down 6 basis points at 3.32%.

Meanwhile, the Swiss National Bank delivered a surprisingly large half-point rate hike Thursday, which buoyed the Swiss franc
USDCHF,
-2.76%,
while the Bank of England lifted rates by a quarter-point, with the central bank’s relatively cautious guidance sending the pound lower.

In U.S. economic data, construction started on new U.S. homes fell 14.4% in May, the Commerce Department said Thursday. The annual rate of total housing starts fell to 1.55 million last month from a revised 1.81 million in April. Economists polled by the Wall Street Journal expected housing starts to fall to a 1.68 million rate from April’s initial estimate of 1.72 million.

The Federal Reserve Bank of Philadelphia said Thursday that its gauge of regional business activity fell to -3.3 in June from 2.6 in the prior month, signaling the first contraction in factory activity since May 2020.

New filings for unemployment benefits fell by 3,000 last week to 229,000, but they remained close to a five-month high, possibly offering a sign that layoffs have ticked up from record-low levels.

Companies in focus

Revlon Inc.
REV,
+9.78%
said Thursday that it has voluntarily filed for bankruptcy. Shares were down 0.7%.

Tesla Inc.
TSLA,
-7.80%
is hiking its U.S. prices, as the electric vehicle maker battles rising aluminum costs and the global supply chain crisis. Shares fell 7.3%.

Separately, Tesla CEO Elon Musk was expected to confirm his desire to own Twitter Inc.
TWTR,
-1.13%
when he speaks to employees of the social-media company on Thursday, The Wall Street Journal reported. Twitter shares were off 0.9%.

Other assets

The ICE U.S. Dollar Index
DXY,
-1.18%,
a measure of the currency against a basket of six major rivals, fell 1%.

Bitcoin
BTCUSD,
-3.17%
fell another 6.7% to trade near $21,000.

Oil futures were choppy, with the U.S. benchmark
CL.1,
+0.31%
edging up 0.2% to trade near $115.57 a barrel. Gold futures
GC00,
+1.57%
rose 1.5% to trade shy of $1,850 an ounce.

The Stoxx Europe 600
SXXP,
-2.47%
dropped 2.5%, while London’s FTSE 100
UKX,
-3.14%
tumbled more than 3%.

The Shanghai Composite
SHCOMP,
-0.61%
ended 0.6% lower, while the Hang Seng Index
HSI,
-2.17%
dropped 2.2% and the Japan’s Nikkei 225
NIK,
+0.40%
rose 0.4%.