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Dow hits 2022 low as markets sell off on recession fears

Markets were sold all over the world amid growing signs of a weakening global economy as central banks stepped up pressure with another rate hike. The Dow Jones Industrial Average closed Friday at the lowest price of the year. The S&P 500 is down his 1.7%, nearing its 2022 lows. Energy prices also closed sharply lower as traders worried about a possible recession. Yields on U.S. Treasury bonds, which affect rates on mortgages and other types of loans, remained at multi-year highs. UK bond yields surged after the new UK government announced plans to cut drastic tax cuts.

This is breaking news. Here’s AP’s previous story:

Stocks tumbled around the world on Friday amid further signs of a weakening global economy as central banks stepped up pressure with another rate hike.

The S&P 500 fell 2% in afternoon trading, adding a dismal cap to an already turbulent week. We are approaching the low point of the year in mid-June.

European stocks plunged as much or more after preliminary data showed business activity contracting the worst monthly since early 2021. Adding to the pressure is a new plan of tax cuts announced in London that could finally send yields in the UK soaring. Force the central bank to raise interest rates even more sharply.

Central banks around the world, including the Federal Reserve (Fed), hiked rates aggressively this week in hopes of keeping high inflation in check, with promises of even more significant rate hikes in the future. rice field. But such a move would also put the brakes on the economy, threatening a recession as global growth slows. In addition to Friday’s disappointing data on European business activity, another report suggests US activity is still shrinking, though not as badly as in previous months.

“Financial markets are now fully absorbing the Fed’s stern message that there is no retreat from the inflation war,” said Douglas Porter, chief economist at BMO Capital Markets, in a research report.

Oil prices fell to their lowest level since the beginning of the year on concerns that a weaker global economy would reduce fuel consumption. Cryptocurrency prices have also plummeted, as higher interest rates tend to hit investments that appear to be the most expensive or riskiest the hardest.

Even gold fell in the global crash as bonds that pay higher yields make interest-free investments less attractive. Meanwhile, the US dollar has risen sharply against other currencies. Not only would this hurt the interests of US companies with many foreign operations, it could also put financial pressure on many in the developing world.

The Dow Jones Industrial Average fell 505 points (1.7%) to 29,572, while the Nasdaq was down 1.9% at 3:43pm. Small company stocks got even worse. The Russell 2000 is down 3% of him. US oil prices he fell 5.7%, weighing on energy stocks.

More than 90% of the S&P 500 stocks are in the red, with technology companies, retailers and banks taking the largest weights in the benchmark indices. The major indices are on pace for his fifth weekly loss in six weeks.

The Federal Reserve on Wednesday raised the benchmark interest rate, which affects many consumer and business loans, to a range of 3% to 3.25%. The beginning of the year was almost zero. The Fed also released forecasts suggesting the benchmark interest rate could reach 4.4% by the end of the year.

As interest rates rose, sovereign bond yields climbed to multi-year highs. Yields on two-year US Treasuries, which tend to follow expectations of Federal Reserve action, climbed to 4.19% from 4.12% at the end of Thursday. It is trading at its highest level since 2007. Yields on 10-year US Treasuries, which affect mortgage rates, fell from 3.71% to 3.68%.

Goldman Sachs strategists say rising interest rates now see an inevitable “hard landing”, a sharp downturn in the economy for a majority of clients. The only question for them is the timing, magnitude and length of a potential recession.

Rising interest rates will hit investments of all kinds, but stock prices may remain stable as long as corporate earnings grow strongly. The problem is that many analysts are starting to cut their future earnings forecasts due to concerns about rising interest rates and the possibility of a recession.

“Market sentiment has increasingly shifted from fears of inflation to fears that economic growth will dampen demand and, at the very least, reduce corporate profits,” said Quincy Crosby, chief global strategist at LPL Financial. ing.

In the U.S., the job market has held up very well, with many analysts believing the economy grew in the summer quarter after contracting in the first half of the year. It also suggests that the Fed may need to raise interest rates further to get the cooling it needs to keep volatility down.

Several key sectors of the economy are already weakening. Mortgage rates hit his 14-year high, and sales of existing homes have tumbled 20% for him over the past year. But other areas that do their best when interest rates are low have also been hit.

Meanwhile, in Europe, already fragile economies are coping with the effects of war on the Eastern Front following Russia’s invasion of Ukraine. The European Central Bank is raising key interest rates to combat inflation, even though the region’s economy is already expected to slip into recession. And in Asia, the Chinese economy is still battling draconian measures aimed at limiting the COVID infection, which has also hit businesses.

Friday’s economic report was disappointing, but few on Wall Street thought it would be enough to force the Fed and other central banks to soften their stance on rate hikes. So they only reinforced fears that interest rates would continue to rise in the face of an already slowing economy.

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Economics writer Christopher Lugerber and business writers Joe McDonald and Matt Ott contributed to this report.

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