Topline
Stocks moved lower on Thursday—adding to recent declines in August—as investors continue to worry about a period of prolonged rate hikes from the Federal Reserve, while market experts warn of further volatility ahead and rising recession risks.
Key Facts
Stocks are on pace for a five-day losing streak: The Dow Jones Industrial Average was down 0.6%, around 200 points, while the S&P 500 lost 1.2% and the tech-heavy Nasdaq Composite 2.2%.
Markets moved lower despite weekly jobless claims coming in at 232,000—the lowest level since late June, in a sign that the jobs market remains “extraordinarily strong” despite ongoing Fed rate hikes and a slowing economy.
Stocks have continued to struggle since Fed chair Jerome Powell’s Jackson Hole speech last Friday, with his comments about raising interest rates “higher for longer,” sparking a selloff that saw the Dow plunge 1,000 points on the day.
As investors now bet on more rate increases, government bond yields have surged higher in recent days, with the yield on the two-year Treasury note at one point surpassing 3.15% on Thursday, its highest level since late 2007.
With Fed officials continuing to indicate that the central bank won’t take its foot off the pedal with interest rate hikes anytime soon, experts warn markets could retest their June lows, especially as September is a historically bad month for markets.
Shares of chipmaker stocks, meanwhile, were hard-hit on Thursday amid news that the U.S. government would ban sales of AI chips to China, with shares of Nvidia and Advanced Micro Devices falling more than 11% and 6%, respectively.
Crucial Quote:
“Markets are trying to get ahead of the eventual recession and the Fed appears on a collision course to create one,” says Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “Whether or not it is a shallow recession or a deeper, more pernicious one is the big question, and the stock market is largely discounting the former.”
Key Background:
Stocks struggled in August, as the summer rally, which saw markets rebound from a June low point, now appears to have fizzled out. All three major indexes closed the month down 4% or more as investors once again have grown more nervous about ongoing rate hikes and rising recession risks. “From a bigger picture perspective, there’s no appetite to step into the market and be a hero, especially ahead of the seasonally treacherous month of September,” explains Vital Knowledge founder Adam Crisafulli.
Further Reading:
Dow Falls 300 Points, Bond Yields Surge As Investors Bet On More Rate Hikes (Forbes)
Market Experts Predict Further Volatility As Fed Rate Hikes Leave ‘Little Room’ For Soft Landing (Forbes)
Stock Market Selloff Continues As Investors Worry About Higher Interest Rates (Forbes)
Job Market Remains ‘Extraordinarily Strong’—Here’s Why That Could Be Bad News For The Economy (Forbes)