Worries About Impact Of Higher Rates Leads To Sharp Pullback On Wall Street

Worries About Impact Of Higher Rates Leads To Sharp Pullback On Wall Street

June 23, 2022

Stocks moved sharply lower over the course of the trading session on Thursday, more than offsetting the rally seen during trading on Wednesday. With the sharp pullback on the day, the major averages tumbled to their lowest closing levels in well over a year.

The major averages climbed off their worst levels going into the close but still posted steep losses on the day. The Dow plunged 741.46 points or 2.4 percent to 29,927.07, The Nasdaq plummeted 453.06 points or 4.1 percent to 10,646.10 and the S&P 500 dove 123.22 points or 3.3 percent to 3,666.77.

The sell-off on Wall Street reflected concerns aggressive monetary policy action by central banks around the world may trigger a global recession.

Following the Federal Reserve’s widely expected 75 basis point interest rate hike on Wednesday, the Swiss National Bank unexpectedly raised interest rates for the first time since 2007.

The Bank of England also announced another 25 basis point rate hike. The BoE’s Monetary Policy Committee voted 6-3 to raise the bank rate to 1.25 percent, the highest rate since early 2009.

Taiwan’s central bank also increased its benchmark rate by 0.125 percentage points, raising rates for the second time in a row

In U.S. economic news, the Labor Department released a report showing a modest decrease in first-time claims for U.S. unemployment benefits in the week ended June 11th.

The report showed initial jobless claims edged down to 229,000, a decrease of 3,000 from the previous week’s revised level of 232,000.

Economists had expected jobless claims to dip to 220,000 from the 229,000 originally reported for the previous week.

Meanwhile, a separate released by the Commerce Department showed new residential construction in the U.S. plunged by much more than expected in the month of May.

The Commerce Department said housing starts tumbled by 14.4 percent to an annual rate of 1.549 million in May after jumping by 5.5 percent to a revised rate of 1.810 million in April.

Economists had expected housing starts to decrease by 1.3 percent to an annual rate of 1.701 million from the 1.724 million originally reported for the previous month.

The report also showed building permits slumped by 7.0 percent to an annual rate of 1.695 million in May after falling by 3.0 percent to a revised rate of 1.823 million in April.

Building permits, an indicator of future housing demand, were expected to decline by 1.9 percent to an annual rate of 1.785 million from the 1.819 million originally reported for the previous month.

The Federal Reserve Bank of Philadelphia also released a report showing a modest contraction in regional manufacturing activity in the month of June.

Sector News

Airline stocks turned in some of the market’s worst performances on the day, resulting in a 7.8 percent nosedive by the NYSE Arca Airline Index. The index tumbled to its lowest closing level in almost two years.

The disappointing housing starts data also contributed to considerable weakness among housing stocks, with the Philadelphia Housing Sector Index plunging by 6.3 percent to nearly two-year closing low.

Semiconductor stocks also showed a substantial move to the downside, dragging the Philadelphia Semiconductor Index down by 6.2 percent to its lowest closing level in well over a year.

Energy stocks also saw significant weakness despite an increase by the price of crude oil, moving sharply lower along with networking, computer hardware and steel stocks.

Meanwhile, gold stocks were among the few groups to buck the downtrend, with the NYSE Arca Gold Bugs Index climbing by 1.7 percent amid a jump by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Thursday. Japan’s Nikkei 225 Index rose by 0.4 percent, while China’s Shanghai Composite Index fell by 0.6 percent.

Meanwhile, the major European markets all showed significant moves to the downside on the day. While the French CAC 40 Index tumbled by 2.4 percent, the U.K.’s FTSE 100 Index and the German DAX Index plunged by 3.1 percent and 3.3 percent, respectively.

In the bond market, treasuries moved notably higher over the course of the session after seeing early weakness. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 8.8 basis points to 3.307 percent.

Looking Ahead

Trading on Friday may be impacted by remarks by Fed Chair Jerome Powell as well as a report on industrial production.

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