Rally Turns Out to Be a Single-Day Event

Dow drops 1K points as concern about interest rates builds
By Newser Editors and Wire Services
Posted May 5, 2022 3:55 PM CDT
Wall Street Reverses Rally a Day Earlier
Pedestrians pass the New York Stock Exchange on Thursday in New York.   (AP Photo/John Minchillo)

(Newser) – A sharp sell-off left the Dow Jones Industrial Average more than 1,000 points lower Thursday, wiping out the gains from Wall Street's biggest rally in two years, as worries grow that the higher interest rates the Federal Reserve is using in its fight against inflation will slow the economy. The benchmark S&P 500 fell 3.6%, its biggest loss in nearly two years, a day after it posted its biggest gain since May 2020. The Nasdaq slumped 5%, its worst drop since June 2020, the AP reports. The losses by the Dow and the other indexes offset the gains from a day earlier.

"Yesterday's sharp rally was not rooted in reality, and today's dramatic selloff is a reversal of that misplaced exuberance," said Ben Kirby, co-head of investments at Thornburg Investment Management. Wall Street's day-to-day reversal reflects the degree of investors' uncertainty and unease over the array of threats the economy is facing, starting with inflation running at the highest level in four decades, and how effective the Federal Reserve's bid to tame higher prices by jacking up interest rates will be. On Thursday, stocks slumped and bond yields climbed. The yield on the 10-year Treasury note rose to 3.04%. Rising yields are sure to put upward pressure on mortgage rates, which are already at their highest level since 2009.

Investors remain uneasy about whether the Fed can do enough to tame inflation without tipping the economy, which is already showing signs of slowing, into a recession. In addition to high inflation and rising interest rates, investors are grappling with uncertainty over lingering supply chain disruptions and geopolitical tensions. "The biggest issue is there are just a lot of moving parts, and the unanswered question is to what extent as the Fed attempts to tame inflation will that result in economic slowing, and perhaps, a recession," said Terry Sandven, chief equity strategist at US Bank Wealth Management. The S&P 500 fell 153.30 points to 4,146.87, while the Nasdaq slid 647.16 points to 12,317.69. The Dow briefly skidded 1,375 points before closing down 1,063.09 points, or 3.1%, to 32,997.97.

(Read more stock market stories.)

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