NEW YORK (AP) – Stocks fell again Thursday, deepening Wall Street’s losses for the week, as central banks around the world raised interest rates to fight inflation.
The S&P 500 fell 0.8%, its third straight drop. The benchmark index is down about 3% so far this week.
The Dow Jones Industrial Average was down 0.4% and the Nasdaq Composite was down 1.4%. The Russell 2000 index of small company stocks fell 2.3%, a sign investors are worried about the economy. Major indexes are on pace for their fifth weekly loss in six weeks.
Bond yields rose mostly. The 2-year Treasury yield rose sharply to 4.11% from 4.02% late Wednesday, following expectations for Federal Reserve action. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, rose to 3.70% from 3.51% late Wednesday.
Barry Bannister, chief equity strategist at Stifel, said the latest wave of selling reflects concern among investors that the Fed may eventually need to be more aggressive in taming inflation than indicated. That scenario is unlikely if prices stabilize and fall, but that process could take more than a year to play out, he said.
“The question is, what is the level of patience for both the Fed and the market,” he said.
Central banks in Europe and Asia raised interest rates a day after the Federal Reserve made another big rate hike, signaling that more are on the way.
Britain’s central bank raised its key interest rate by another half-percentage point. Switzerland’s central bank raised its benchmark lending rate by its biggest margin to date, 0.75 percentage points, and said it could not rule out further hikes. The central banks of Norway and the Philippines also raised interest rates.
The Fed and other central banks are raising interest rates to make borrowing more expensive. The goal is to slow economic growth enough to control inflation, but not so much that economies fall into recession. Wall Street worries that the Fed may be pumping the brakes too hard on a slowing economy, making steering into a recession more likely.
On Wednesday, Fed Chair Jerome Powell reiterated his determination to raise rates high enough to bring inflation back toward the central bank’s 2% target. Powell said the Fed is starting to reach that level with these recent hikes. The US central bank lifted its benchmark rate, which affects many consumer and business loans, from 3% to 3.25%. This is the fifth rate increase this year and up from zero at the start of the year.
The Fed also released a forecast known as a “dot plot” that showed it expected its benchmark rate to reach 4.4% by the end of the year, a full point higher than envisioned in June.
“There are no easy answers when you have the most powerful entity in the world, the Federal Reserve, committed to this path of hiking rates,” said Michael Antonelli, market strategist at Baird. “There’s just a flurry of people in it.”
The S&P 500 fell 31.94 points to 3,757.99 on Thursday. The index is now at its lowest level since mid-June and is down more than 21% so far this year.
The Dow lost 107.10 points to close at 30,076.68, while the Nasdaq ended down 153.39 points at 11,066.81. Russell fell 39.85 points to 1,722.31.
Losses were broad and concentrated among retailers and technology, financial and industrial stocks. Starbucks fell 4.4%, Nvidia 5.3%, American Express 3.8% and UPS 3.4%.
Healthcare stocks were among the few bright spots. Johnson & Johnson rose 1.8%.
Companies are winding down the end of the third quarter and preparing for the next big earnings report, though some early reports have come out. Homemaker Lena rose 2% after reporting strong financial results for its fiscal third quarter. Fellow homemaker KB Home fell 5.1% after warnings about supply chain issues and a mixed financial report.
AP Business writers Joe McDonald and Matt Ott contributed to this report.
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