Recession fears hit Dow as it falls to 2022 low amid selling markets

Markets sold off around the world due to increasing signs that the global economy is weakening as central banks increased the pressure further with further increases in interest rates. the Dow The Jones Industrial Average closed at its lowest point of the year on Friday. The S&P 500 fell 1.7%, near its 2022 low. Energy prices also closed significantly lower as traders worried about a possible recession. Savings yields, which affect payments on mortgages and other types of loans, are held for long years.

European stocks fell as much or more after preliminary data suggested business activity had its worst monthly decline since the start of 2021. Adding to the pressure is a new plan that announced in London to cut taxeswhich sent the UK yielding because it would eventually force its central bank to raise rates more sharply.

the Federal Reserve and other central banks around the world raised interest rates aggressively this week in hopes of reducing high inflation, with bigger increases promised for the future. But such moves also put the brakes on their economies, threatening recessions as growth slows globally. In addition to Friday’s disappointing data on business activity in Europe, a separate report suggested that activity in the US was also declining, although not as sharply as in previous months.

“Financial markets are now fully absorbing the Fed’s hawkish message of no retreat from the fight against inflation,” Douglas Porter, chief economist at BMO Capital Markets, wrote in a research report.

Crude oil prices have fallen to their lowest level since early this year on concerns that a weak global economy will burn less fuel. Cryptocurrency prices have also fallen sharply as higher interest rates tend to hit investments that are seen as the most expensive or riskiest.

Even gold fell in global losses, as bonds paying higher yields made non-interest-bearing investments look less attractive. while the US dollar is moving higher against other currencies. That would hurt profits for US companies that do business overseas, as well as put a financial strain on much of the developing world.

The Dow Jones Industrial Average fell 505 points, or 1.7%, to 29,572 and the Nasdaq fell 1.9% at 3:43 pm Eastern. Smaller company stocks fared even worse. The Russell 2000 fell 3%. US crude oil prices fell 5.7% and weighed heavily on energy stocks.

More than 90% of S&P 500 stocks are in the red, with technology companies, retailers and banks among the benchmark index’s biggest weights. Major indexes are on pace for their fifth weekly loss in six weeks.

The Federal Reserve on Wednesday raised its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%. It was close to zero at the start of the year. The Fed also released a forecast that suggested its benchmark rate would be 4.4% by the end of the year, a full point higher than it projected in June.

Treasury yields rose to multiyear highs as interest rates rose. The yield on the 2-year Treasury, which is likely to follow expectations for action by the Federal Reserve, rose to 4.19% from 4.12% late Thursday. It traded at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.68% from 3.71%.

Higher rates mean Goldman Sachs strategists say most of their clients now see a “hard landing” pulling the economy lower as inevitable. The question for them is the timing, size and length of a potential recession.

Higher interest rates hurt all types of investments, but stocks can hold steady as long as corporate profits grow rapidly. The problem is that many analysts are starting to cut their forecasts for future earnings because of higher rates and concerns about a possible recession.

“Increasingly, market psychology has shifted from inflation concerns to concerns that, at the very least, corporate profits will decline as economic growth slows demand,” said Quincy Krosby, chief global strategist. for LPL Financial.

In the US, the job market remains very strong, and many analysts think the economy grew in the summer quarter after contracting in the first six months of the year. But encouraging signs also suggest the Fed may need to jack rates higher to get the cooling needed to bring inflation down.

Some key areas of the economy are already weakening. Mortgage rates have reached a 14-year high, causing sales of existing homes to fall by 20% last year. But other places that do best when prices are low also do harm.

In Europe, meanwhile, the already fragile economy is dealing with the effects of the war on its eastern front following Russia’s invasion of Ukraine. The European Central Bank has raised its key interest rate to curb inflation even as the region’s economy is expected to slip into a recession. And in Asia, China’s economy is battling austerity measures aimed at limiting COVID infections that are also hurting businesses.

While Friday’s economic reports were disappointing, few on Wall Street saw them as enough to convince the Fed and other central banks to soften their stance on raising rates. So they only reinforce the fear that rates will continue to rise in the face of already sluggish economies.

—Economics Writer Christopher Rugaber and Business Writers Joe McDonald and Matt Ott contributed to this report.

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