Wall Street closed sharply lower on Thursday in an abrupt reversal of the previous trading session’s rally, with the Nasdaq posting its biggest one-day decline since June 2020 and the biggest reversal since the pandemic began.
The Nasdaq Composite, which includes many of the largest US technology companies, fell 5 percent. Wednesday’s rally and Thursday’s decline marked the index’s sharpest swing since March 2020, with the Nasdaq fluctuating more than 8 percentage points over two trading days.
The blue-chip S&P 500 index was also down sharply Thursday, slipping 3.5 percent, with more than 95 percent of stocks in the benchmark finishing lower.
“Today is the first day I remember feeling just bad,” said Danny Kirsch, Piper Sandler’s head of options. “You’ve felt bad for a while, but this is a broader bad. Today there was nowhere to hide.”
Every major sector was negative, with sectors such as consumer discretionary and technology companies among the biggest losers. Kirsch said it appears some funds hit by outflows were selling shares to raise cash.
The Federal Reserve hiked interest rates by 0.5 percentage points on Wednesday, the largest hike since 2000, in a bid to tame rising inflation. Fed Chairman Jay Powell sent a strong signal that the Federal Reserve is likely to raise rates by the same amount at its next two meetings.
Powell’s comments were initially perceived as dovish, particularly after he appeared to brush off the possibility of a 0.75 percentage point rise for this year. Shares then rose on Wednesday, with the S&P posting its best day since May 2020.
Markets have been hit hard this year as investors downgraded global growth forecasts amid concerns over a slowdown in China and the impact of Russia’s invasion of Ukraine. More than $8 trillion was taken from the value of the US stock market this year as hedge funds and other investors reduced their positions.
Seaport Global Holdings chief executive Tom di Galoma described Thursday’s sharp selloff as a “capitulation deal.”
“There’s more tightening on the way, so there’s no reason to buy the fall in stocks. There’s also no reason to buy bonds at this level because it doesn’t look like inflation is going anywhere.”
Shares of some of America’s largest companies plunged, with Amazon down 7.6 percent, Tesla down 8.3 percent and Apple down 5.6 percent. However, the declines were not accompanied by a surge in trading activity, and volumes on the Nasdaq were roughly in line with the 100-day moving average, Bloomberg data showed.
Instead, Thursday’s downside may have been exacerbated by trading in options and futures markets as banks and brokers scramble to hedge as stocks fell, said Matthew Tym, Cantor Fitzgerald’s head of derivatives trading.
“With the 10 year old [Treasury] Movement, the movement in oil and currencies, we would have sold out but I don’t think it would have been as fast as this morning,” he added. “Do I think we’ve hit rock bottom? Certainly not.”
US Treasuries also suffered from an intense sell-off, pushing the 10-year Treasury bond yield up 0.1 percentage point to 3.04 percent.
In a sign of global economic tensions, the Bank of England on Thursday warned the UK could slip into recession this year as higher energy prices push inflation above 10 percent.
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“This is really the sum of all our fears” about the UK economy, said Roger Lee, head of UK equity strategy at Investec. “Growth forecasts have been downgraded, inflation expectations upgraded and interest rates continue to rise.”
The dollar index, which measures the greenback against a basket of six others, rose 0.9 percent on Thursday. Sterling fell more than 2 percent against the dollar to $1.24, its weakest since June 2020.
Reporting by Kate Duguid and Eric Platt in New York, Adam Samson, Naomi Rovnick, George Steer and Ian Johnston in London, and Hudson Lockett in Hong Kong
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