Wall Street closed sharply lower on Thursday in a sharp reversal of the rally in the previous trading session, with the Nasdaq posting its biggest one-day drop since June 2020 and the biggest u-turn since the start of the pandemic.
The Nasdaq Composite, made up of many of the largest US technology companies, fell 5 percent. Wednesday’s rally and Thursday’s pullback marked the sharpest turn in the index since March 2020, with the Nasdaq swinging more than 8 percentage points over two trading days.
The blue-chip S&P 500 index also declined significantly on Thursday, falling 3.5 percent with more than 95 percent of stocks in the benchmark index finishing lower.
“Today is the first day I remember feeling bad,” said Danny Kirsch, chief options officer for Piper Sandler. “They have felt bad for a while, but this is a broader evil. There was nowhere to hide today.”
All major sectors were in the red, with industries including consumer discretionary and technology among the biggest decliners. Kirsch said it appeared some funds affected by the exits were selling holdings to raise cash.
The Federal Reserve on Wednesday raised its main interest rate by 0.5 percentage point, the biggest increase since 2000, in a bid to rein in runaway inflation. Fed Chairman Jay Powell sent a strong signal that the US central bank is likely to raise rates by the same amount at its next two meetings.
Powell’s comments were initially seen as dovish, especially after he appeared to rule out the possibility of a 0.75 percentage point increase this year. Stocks subsequently rose on Wednesday, with the S&P posting its best day since May 2020.
Markets have been hit hard this year as investors cut global growth forecasts amid concerns about a slowdown in China and the fallout from Russia’s invasion of Ukraine. More than $8 trillion has been wiped from the value of the US stock market this year as hedge funds and other investors shed positions.
Tom di Galoma, managing director of Seaport Global Holdings, described Thursday’s sharp selloff as a “capitulation business.”
“More adjustments are on the way, so there is no reason to buy the stock down. There’s also no reason to buy bonds at this level because inflation doesn’t look like it’s going anywhere.”
Shares in some of America’s biggest corporate names stumbled lower, with Amazon falling 7.6 percent, Tesla sinking 8.3 percent and Apple falling 5.6 percent. However, the declines were not accompanied by increased trading activity, with volumes on the Nasdaq roughly in line with the 100-day moving average, Bloomberg data showed.
Instead, Thursday’s move lower may have been exacerbated by trading in futures and options markets as banks and brokers scrambled to protect themselves from falling equities, said the head of derivatives trading at Cantor Fitzgerald, Matthew Tym.
“With the 10 years [Treasury] movement, the movement in oil and currencies, we would have sold, but I do not think it would have been as fast as this morning, “he added. “I think we’ve seen a bottom? Certainly not.”
US government bonds also suffered a sharp sell-off, sending the yield on the 10-year Treasury note up 0.1 percentage point to 3.04 percent.
In a sign of global economic stress, the Bank of England warned on Thursday that the UK will slide into recession this year as higher energy prices push inflation above 10 percent.
“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 lowered, inflation expectations have been improved 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 slumped more than 2 percent against the dollar at $1.24, its lowest level 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