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On Friday, stock markets continued their week-long plunge, with all three major indexes falling more than 1%, as investors losing confidence in the global economy rushed for exits.
Wall Street has developed a gloomy view of the economy’s future, where a recession looks more likely, as it digests warnings from the Federal Reserve about what it will take to calm the country’s overheated inflation.
The Dow Jones fell more than 486 points, or 1.6%, to close at 29,590 on Friday, the lowest in nearly two years. The Dow Jones was down 4% for the week and also closed 19.59% from its last high in January, bringing it back to the 20% bear market boundary.
Both the Nasdaq and the S&P 500 have now entered bear markets. The Nasdaq fell 1.8% to 10,868, 32.3% below its most recent peak 10 months ago. The S&P fell 1.72% to 3,693, down 23% from its January peak.
Stock markets, as well as bond and commodity markets, relied on the Fed’s announcement this week that it will continue to raise interest rates until inflation is under control, regardless of be the risks of recession.
Already this year, the central bank has raised rates at a speed and scale not seen in a generation, hoping to curb the worst inflation the country has seen in 40 years.
Most Americans hoped for a “soft landing,” where the Fed’s moves to stabilize prices would lead to only a slight economic decline. But Fed Chairman Jerome Powell made it clear on Wednesday that the economy could experience a “hard landing” from a severe downturn.
“No one knows if this process will lead to a recession, or if so, how big that recession would be,” Powell told a news conference after the Fed announced it was raising rates. interest rate of 0.75% for the third consecutive time.
“Nevertheless, we are committed to bringing inflation down to 2% because we believe that a failure to restore price stability would mean much more suffering later.”
Powell’s comments and the bleak outlook for FedEx, the multinational corporation with strong connections to global supply chains, have sown confusion over the future, with Goldman Sachs analyst David Kostin describing the economic outlook as “exceptionally murky”.
“The paths for inflation, economic growth, interest rates, earnings and valuations are all changing,” Kostin wrote on Friday.
“Based on our discussions with our clients, a majority of equity investors have taken the view that a hard landing scenario is inevitable and they are focused on the timing, magnitude and duration of a potential recession and on investment strategies for those prospects,” he also wrote. .