Wall Street’s massive selloff on Friday had the the Dow flirting with a bear market as investors appear resigned to the incontrovertible fact that the Fed has abandoned hopes for a “soft landing” and can proceed to aggressively raise rates of interest to fight inflation — even when it means a deeper recession.
The Dow Jones Industrial Average was down greater than 800 points — falling into bear market territory at one point — before a late rally shaved the losses. The index closed down 486.27 to complete at 29,590.41, its lowest level of 2022 and a shade above the 20% decline from its high that outline a bear market.
The S&P 500 dropped 65 points, shedding 1.7% from its pre-market place to begin. The tech-dominated Nasdaq Composite plunged nearly 300 points, or 1.8%.
“The present numbers are definitely scary,” Brad McMillan, chief investment officer for Waltham, Mass.-based Commonwealth Financial Network, told The Post. “And there may be, in reality, so much to fret about.”
The markets were rattled by the Fed’s recent 75-basis-points hike in addition to the precipitous decline of the British pound against the US dollar.
The UK’s recent prime minister, Liz Truss, spooked global investors Friday when her chancellor of the exchequer, Kwasi Kwarteng, announced that the federal government would pursue tax cuts and more borrowing in an try to lift the British economy out of its doldrums.
The S&P 500 fell 1.7% on Friday.Getty Images/iStockphoto
The announcement sent stocks, bonds and the British pound tumbling — stoking fears of a world recession.
“The market is finally taking the Fed at their word — they will cause a recession with a view to fight inflation,” Chris Zaccarelli, chief investment officer for Charlotte, NC-based Independent Advisor Alliance, told The Post.
“That is bad news for financial markets and worse news for employees and the economy.”
The financial markets were spooked by the Fed’s strategy of aggressively mountaineering rates of interest to beat back inflation.AP
Zaccarelli said “things will worsen before they get well, but they are going to get well eventually.”
“Unfortunately, it’s going to take time before things do improve.”
Investors should buckle up for a bumpy ride, McMillan said.
“The Fed has committed to raising rates until inflation is brought under control, which is what sparked the present renewed downturn and is a reason for caution,” McMillan said. “We are able to expect continued market turbulence for a while.”
McMillan said the Fed is counting on a tried-and-true formula — short-term pain followed by long-term gain.
“The Fed is performing surgery immediately on the economy,” he said. “Within the short run, it’s painful. But in the long term?”
“It’s a healing process and one which sets the stage for a healthier economy and markets.”