US STOCKS OUTLOOK:
- U.S. stocks erase Wednesday’s gains and turn sharply lower
- The S&P 500[1] plummets more than 3% and hits new 2022 lows
- Selling activity on Wall Street[2] appears to be triggered by fears that the U.S. economy is headed for a recession
Most Read: Fed Raises Rates by 75 Basis Points in Largest Hike Since 1994 in Effort to Crush Inflation[3]
Bullish sentiment didn’t last long on Wall Street. After Wednesday’s brief relief rally, U.S. stocks took a sharp turn to the downside Thursday, with most sectors selling off violently amid growing recession anxiety[4]. At the time of writing, the S&P 500 has given up all of the previous session's gains and more, losing roughly 3% and setting a new 2022 low around 3,660.
Yesterday, the Fed raised its benchmark rate by 75 basis points to 1.50-1.75%, delivering its largest hike since 1994, but the forceful measure failed to spark a negative reaction [5]as Chair Powell clarified during his press conference that moves of that size would not be common.
By not endorsing an uber-hawkish approach, Powell calmed some nerves temporarily, but the mood has soured again as traders begin to acknowledge that the central bank’s remains on course to remove accommodation aggressively over the forecast horizon. For context, 150 basis points of additional tightening is expected for the remainder of the year. This should take the federal funds rate above neutral and into restrictive territory late in 2022, creating headwinds for risk assets.
Restrictive monetary policy at a time of slowing activity will become an additional drag on economic growth, increasing the likelihood of a hard landing in the medium term. Recession fears were heightened this morning after interest rates
