Stocks pulled back sharply on Thursday, completely erasing a rally from the previous session in a surprise reversal that handed investors one of the worst days since 2020.
The Dow Jones Industrial Average lost 1,063 points, or 3.12%, to close at 32,997.97. The tech-heavy Nasdaq Composite fell 4.99% to finish at 12,317.69, its lowest closing level since November 2020. Both losses were the worst single-day declines since 2020.
The S&P 500 fell 3.56% to 4,146.87, marking its second worst day of the year.
The moves come after a big rally in stocks on Wednesday, when the Dow rose 932 points, or 2.81%, and the S&P 500 gained 2.99% to post its biggest gains since 2020. The Nasdaq Composite rose 3.19%.
All of those gains had been erased before noon in New York on Thursday.
“If you go up 3% and then give up half the next day, that’s pretty normal… But to have the kind of day we had yesterday and then see it 100% reversed in half a day is really extraordinary,” Randy Frederick said. , managing director of trading and derivatives at the Schwab Center for Financial Research.
Big tech stocks were under pressure, with Facebook parent Meta Platforms and Amazon falling nearly 6.8% and 7.6%, respectively. Microsoft fell about 4.4%. Salesforce fell 7.1%. Apple sank about 5.6%.
E-commerce stocks were a key source of weakness on Thursday after some disappointing quarterly reports.
Etsy and eBay fell 16.8% and 11.7%, respectively, after issuing a weaker-than-expected earnings forecast. Shopify fell nearly 15% after missing estimates on the top and bottom lines.
The falls dragged the Nasdaq to its worst day in almost two years.
The Treasury market also saw a dramatic reversal of Wednesday’s rally. The 10-year Treasury yield, which moves in the opposite direction to price, climbed back above 3% on Thursday and hit its highest level since 2018. Rising rates may put pressure on price-oriented tech stocks. growth, as it makes distant earnings less attractive to investors
On Wednesday, the Fed raised its benchmark interest rate by 50 basis points, as expected, and said it would start cutting its balance sheet in June. However, Fed Chairman Jerome Powell said during his news conference that the central bank is “not actively considering” a larger 75 basis point rate hike, which appeared to spark a rally.
Still, the Fed remains open to the prospect of raising rates above neutral to rein in inflation, said Zachary Hill, chief portfolio strategist at Horizon Investments.
“Despite the tightening we’ve seen in financial conditions in recent months, it’s clear the Fed would like to see them tighten further,” he said. “Higher stock valuations are incompatible with that desire, so unless supply chains recover quickly or workers return to the workforce, any rally in stocks is likely to be on borrowed time.” as the Fed’s messaging becomes more aggressive once again.”
Stocks leveraged by economic growth also took a beating on Thursday. Caterpillar fell almost 3% and JPMorgan Chase lost 2.5%. Home Depot sank more than 5%.
Carlyle Group co-founder David Rubenstein said investors need to “get back to reality” about the headwinds for markets and the economy, including the war in Ukraine and high inflation.
“We’re also looking at 50 basis point hikes in the next two FOMC meetings. So we’re going to tighten a little bit. I don’t think it’s going to be tight enough that we slow down.” the economy … but we still have to acknowledge that we have some real economic challenges in America,” Rubenstein said Thursday on CNBC’s “Squawk Box.”
Thursday’s sell-off was broad, with more than 90% of S&P 500 stocks in decline. Even the best performing countries for the year lost ground, with Chevron, Coca-Cola and Duke Energy all falling less than 1%.