Dow Jones plunges more than 1000 points

So much for the good feelings on Wall Street.

US share markets fell sharply overnight, marking their worst day of the year and wiping out all of the gains from Wednesday after the Federal Reserve’s announcement of its plans to increase in its benchmark interest rate won over investors.

Federal Reserve Chairman Jerome Powell helped reassure investors on Wednesday, saying that future rate hikes larger than 50 basis points are “not something the (Fed) is actively considering,” leading to a bullish surge in US markets.

Technology stocks headed the fall in share prices on Wall Street. (AP)

The major indexes all grew by around 3 per cent, and the S&P 500 and Dow had their best days in nearly two years.

But investors woke up with a binge-trading hangover, and markets catapulted into the red as they further digested the Fed news.

All of Wednesday’s gains were erased by midday and markets only got worse from there.

The Dow dropped 1120 points, or 3.3 per cent, the S&P 500 fell 3.7 per cent.

The Nasdaq Composite tumbled 5.2 per cent, its worst day since 2020.

“I’ve been in the markets for 25 years and I’ve never seen anything like this,” Danielle DiMartino Booth, CEO and chief strategist for Quill Intelligence, a Wall Street and Federal Reserve research firm, said.

“It’s violent not just volatile.”

DiMartino Booth thinks the massive drop only makes sense if you classify Wednesday’s surge as a melt-up.

“The markets were so poised to rally yesterday and there were probably a lot of people who were short and had to rush to cover, today is a backlash,” she said.

Market drops such as today’s are unusual and reminiscent of 2008 and 2009, said Randy Frederick, managing director of trading and derivatives at the Schwab Centre for Financial Research.

But economic conditions are much stronger than they were at the start of the Great Recession, leaving analysts scratching their heads searching for a catalyst, he said.

So what changed between last night and today to cause investors to flip 180 degrees?

“The tea leaves are hard to read right now,” Frederick said.

“But this could be a sign of market capitulation, where investors are panicked to the point of throwing in the towel.”

Capitulation, he added, can also indicate that we’ve reached a market bottom.

Federal Reserve Chairman Jerome Powell sought to reassure investors about future rises in interest rates. (AP)

Large tech stocks led losses overnight.

Big tech is particularly vulnerable to rising rates because their promise of future innovation and subsequent earnings are valuable to investors.

Facebook parent company Meta fell by nearly 6.8 per cent, Amazon was down 7.6 per cent, and Google parent company Alphabet toppled 4.7 per cent

E-commerce stocks also dropped precipitously after reporting weak earnings for the first quarter of the year.

Etsy fell by nearly 17 per cent and eBay dropped by about 12 per cent.

New economic data, meanwhile, showed that labour productivity dropped by 7.5 per cent in the first quarter of 2022, its fastest decline since 1947.

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Reference-www.9news.com.au

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