Stocks dove on Thursday, giving up gains from their best day since 2020 in a swing that highlights Wall Street’s uncertainty about what the Federal Reserve’s campaign to slow inflation may mean for the economy.
The S&P 500 fell as much as 3.5 percent in midday trading, following a gain of 3 percent on Wednesday. Yields on government bonds spiked, with the rate on 10-year US Treasury notes, a benchmark for borrowing costs, climbing to just above 3 percent, its highest since late 2018.
Swings in the stock market have become amplified lately, as investors worry that the combination of inflation and fast-rising interest rates could hit consumer spending, corporate profits and — ultimately — economic growth.
On Wednesday, the Fed raised its benchmark rate by half a percentage point. That decision was widely expected by investors, and after the Fed chair, Jerome H. Powell, said in a news conference that policymakers weren’t considering making even larger increases — specifically ruling out a 0.75 percentage point jump at a future meeting — the S&P 500 sold.
Higher interest rates will dampen inflation by making it more expensive for consumers and companies to borrow and spend, reducing demand. But the Fed also acknowledged the factors behind rising prices that are out of its control, namely Russia’s invasion of Ukraine, which has pushed energy prices higher, and China’s recent Covid lockdown which could further disrupt an already unsteady supply chain.
“Markets are now reverting back to expectations for financial conditions that existed prior to yesterday’s press conference,” said Scott Knapp, the chief market strategist at CUNA Mutual Group. “Investors have watched the Fed move from its theory that inflation would be transitory to one of considerable concern about its potential duration and toll on the economy.”
That shift from the Fed triggered a dive in the S&P 500 in April, with the index tumbling 8.8 percent for the month.
Tech stocks, which have been particularly susceptible to selling as investors rethink their willingness to own risky investments, were sharply lower on Thursday. Meta, Facebook’s parent company, was down 6 percent, and Amazon fell more than 7 percent. Apple, Microsoft and Alphabet, Google’s parent company, were also lower.
Thursday’s retreat comes ahead of a pair of widely watched updates on the economy. The Labor Department will publish its monthly report on jobs on Friday, which could give a better indication of how tight the labor market is in the US
Last month, Mr. Powell indicated that the labor market was “unsustainably hot,” fueling concern that the Fed would ramp up its effort to raise rates.
The government is also going to release its latest update of the Consumer Price Index next week. In March, that measure of inflation rose 8.5 percent, its fastest 12-month pace since 1981, as a surge in gasoline prices tied to Russia’s invasion of Ukraine added to increases coming from the collision of strong demand.