Stocks plummet as post-Fed rally fizzles amid global effort to curb inflation

U.S. stocks slid on Thursday after the Federal Reserve’s biggest rate hike in decades and as central banks including the Bank of England followed with increases of their own in an effort to subdue rising inflation.

Following the Fed’s 0.75 percentage point hike in its benchmark rate on Wednesday, the Bank of England upped its rate by 25 basis points to 1.25%.

“Other central banks have joined the parade of tightening,” Art Hogan, chief market strategist at National Securities Corp., told CBS MoneyWatch. “The markets are considering the fact that this inflation issue is global and all central banks are behind the curve and need to get more aggressive.”

In early afternoon trade, the Dow Jones Industrial Average was down 706 points, or 2.3%, at 29,962. The S&P 500 declined 119 points, or 3.2%, to 3,670 while the technology-heavy Nasdaq Composite shed 442 points, or 4% to 10,656.

Tesla cratered 8% as Elon Musk addressed Twitter workers ahead of his acquisition of the social-media platform, which the Tesla and SpaceX CEO agreed to buy earlier in the year, but has since thrown doubt on the deal.

Shares of Kroger dropped 1% after the grocery chain said increased costs was cutting into margins. Cosmetics maker Revon filed for Chapter 11 bankruptcy protection, with global supply-chain woes proving to be the final nail for the debt-riddled company.

The Fed has rapidly shifted gears this year from propping up the economy during the pandemic to trying to choke off a surge in consumer prices, which have been rising at the fastest rate since the 1980s. 

Policymakers hiked the federal funds rate, which controls how much banks pay to borrow money from each other — 0.25% of a percentage point in March and followed that with a half-point move in May. The push to lower consumer demand and tamp down inflation is raising concerns that sharply higher interest rates could trigger a recession. 

The Swiss National Bank raised its key interest rate for the first time in 15 years, a surprise move that rattled the market. 

“The Swiss National Bank came out of the blue, and when you throw central banks and emergency in the same sentence, that tends to raise some eyebrows,” Hogan noted. 

Still, Thursday’s market decline is in keeping with recent history, Hogan noted. “Over the last six Federal Reserve meetings the market has rallied the day of and sold off the day after, so in terms of discernible patterns it appears to be think again Thursday,” he said.

Mortgage rates surge

Mortgage rates jumped the most in more than 30 years, with the average for a 30-year loan rising to 5.78% from 5.23% a week ago, Freddie Mac said Thursday.

“These higher rates are the result of a shift in expectations about inflation and the course of monetary policy,” Sam Khater, Freddie Mac’s chief economist said in a statement. “Higher mortgage rates will lead to moderation from the blistering pace of housing activity that we have experienced coming out of the pandemic, ultimately resulting in a more balanced housing market.”

Furthering the bleak view was data showing new U.S. home construction fell in May, illustrated the effects of supply-chain disruptions and falling sales. 

“The mindset of the market is extremely negative — all rallies are considered an opportunity to sell stocks further as a recession is thought to be inevitable (barely anyone thinks the U.S. economy can avoid a recession with the Fed tightening as aggressively as it is),” Adam Crisafulli of Vital Knowledge said in a report.