Market Snapshot: Dow ends below 30,000, stocks finish at lowest levels since 2020 as recession fears rear up

What drove 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.

“It’s quite disheartening,” said John Carey, director of equity income at Amundi US, by phone. “People are now openly talking about the possibility of a recession, in part, because of the dampening effect of higher rates needed to bring inflation under control.”

The spark of hopefulness on display Wednesday post-Fed decision has given way to a sense of dread, he said, as investors mull the likelihood that the economy slows and corporate earnings come under pressure from higher costs and climbing rates.

“I feel bad for a lot of people who have retirement savings at risk,” Carey said.

Read: Real assets may still prosper as Fed fights inflation: it’s hard to get ‘inflationary genie’ back in the bottle, says this ETF portfolio manager

“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.”

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.

While stimulus initially helped fuel spending, “inflation has shifted to a more permanent — and more threatening — trend, driven by housing and services,” Brad McMillan, chief investment officer at Commonwealth Financial Network, said in a client note. “That has made it a much higher risk than it appeared even a month or two ago.”

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

Treasury yields fell Thursday as the selloff in equities appeared to spark haven-buying interest. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.200%
was down 8.6 basis points at 3.303%.

Meanwhile, the Swiss National Bank delivered a surprisingly large half-point rate hike Thursday, which buoyed the Swiss franc
USDCHF,
-0.14%,
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,
  -13.33%
  said Thursday that it has voluntarily filed for bankruptcy. Shares fell 13.3%.

• Tesla Inc.
  TSLA,
  -8.54%
  is hiking its U.S. prices, as the electric vehicle maker battles rising aluminum costs and the global supply chain crisis. Shares lost 8.5%.

Other assets

• The ICE U.S. Dollar Index
  DXY,
  -1.27%,
  a measure of the currency against a basket of six major rivals, fell 1.4%.

• Bitcoin
  BTCUSD,
  +0.34%
  fell another 3.3% to trade near $20,900.

• Oil futures were choppy, with the U.S. benchmark
  CL.1,
  +1.42%
  ending 2% higher at $117.58 a barrel. Gold futures
  GC00,
  +2.18%
  rose 1.7% to settle at $1,849.90 an ounce.

• The Stoxx Europe 600
  SXXP,
  -2.47%
  dropped 2.5%, while London’s FTSE 100
  UKX,
  -3.14%
  tumbled 3.1%.

• 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%.

—Steve Goldstein contributed reporting to this article