Stocks plunged on Wall Street Thursday as bond yields marched higher and put the squeeze back on markets.
The S&P 500 dropped 79 points, or 2.1%, to 3,640. Nearly every stock in the benchmark index lost ground. The Dow Jones Industrial Average dropped 458 points, or 1.5%, to 29,225 and the Nasdaq fell 2.8%.
The slide marked a reversal from Wednesday, when stocks jumped and bond yields tumbled in relief after the Bank of England moved forcefully to keep borrowing rates in the United Kingdom from spiking further. That relief was short-lived, however, with Wall Street still focused on the Federal Reserve’s push to ratchet up interest rates and cool inflation.
“The primary driver of today’s slump is the U.K. as [Prime Minister Liz] Truss defended her government’s fiscal agenda, calling it the ‘right plan’ and vowing to press forward with its implementation,” analyst Adam Crisafulli of Vital Knowledge said in a research note. “Not until Truss yields on her plans (or provides additional details) will gilts and the [British pound] truly settle,” he said.
U.S. bond yields jumped. The yield on the 2-year Treasury, which tends to follow expectations for Federal Reserve action, fell to 4.23% from 4.14% late Wednesday. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, rose to 3.80% from 3.73%.
Russia’s war in Ukraine
“The situation with Russia remains a source of concern, too,” added Crisafulli.
Russia confirmed on Thursday it will formally annex parts of Ukraine where occupied areas held Kremlin-orchestrated “referendums” on living under Moscow’s rule.
“The referendums could bring a stalemate to the fighting, but this isn’t necessarily a ‘positive’ as Europe’s energy crisis grows more acute,” Crisafulli said.
However, the United States and its Western allies have sharply condemned the votes as “sham referenda” and vowed never to recognize their results. German Foreign Minister Annalena Baerbock on Thursday joined other Western officials in denouncing the referendums.
“Under threats and sometimes even (at) gunpoint people are being taken out of their homes or workplaces to vote in glass ballot boxes,” she said at a conference in Berlin.
Recession fears bolstered by jobs report
A better-than-expected government report on U.S. layoffs only bolstered expectations that the Fed will keep hiking interest rates and investors are worried that it could hit the brakes on the economy too hard and cause a recession.
The U.S. economy has already contracted for two consecutive quarters, which is one informal measure of a recession. But, the employment market remains strong and consumers continue spending. That has helped bolster the economy and is making it more difficult to get inflation under control.
