Dow falls 800 points, tumbling below 30,000 to the lowest level in more than a year

Dow falls 800 points, tumbling below 30,000 to the lowest level in more than a year

The Dow Jones Industrial Average tumbled below the key 30,000 level on Thursday as investors worried the Federal Reserve’s more aggressive approach toward inflation would bring the economy into a recession.

Markets had rallied on Wednesday after the Fed announced its largest rate hike since 1994, but reversed those gains and then some on Thursday, as the Dow tumblied to the lowest level since January 2021.

The Dow dropped 2.6%, or 810 points. The S&P 500 slipped 3.6%, while the Nasdaq Composite slid 4.5% and hit its lowest level since September 2020.

As of 2 p.m. Thursday, the major averages were down 4.8%, 6.3% and 6.4%, respectively, for the week and well below record levels.

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The S&P 500 and Nasdaq Composite are both in bear market territory, down roughly 24% and 34% from their all-time highs in January and November, respectively, as rampant inflation and fears of slowing economic growth weigh on investors.The Dow, meanwhile, is about 19% below its Jan. 5 all-time intraday high.

“Investor sentiment seems to only be able to focus on one thing at a time,” said Susan Schmidt of Aviva Investors. “Yesterday, the Fed delivered as people expected. It was combating the consumer price index data that was much higher than people expected and raised concerns about inflation being so aggressive. Investors are now remembering that the counter to this is a slowing of the economy.”

The Dow on Thursday traded below 30,000 for the first time since Jan. 4, 2021 after first breaking above that level for the first time in November 2020. That came as the emergence of Covid-19 vaccines and massive stimulus from the Fed fueled a broader market rally — led by tech shares — and took the major averages to then-record highs.

Breaking above the 30,000 mark put the Dow more than 60% above its pandemic closing low at the time. While 30,000 isn’t necessarily a technical level for the Dow, these round 1,000-point thresholds are seen by many on Wall Street as key psychological levels for the market. 

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Data out Thursday further indicated a dramatic slowdown in economic activity. Housing starts dropped 14% in May, topping the 2.6% decline expected by economists polled by Dow Jones. The Philadelphia Fed Business Index for June came in with a negative 3.3 reading, its first contraction since May 2020.

Home Depot, Intel, Walgreens, JPMorgan, 3M, and American Express hit new 52-week lows amid growing recession fears while tech shares dropped after a bounce on Wednesday. Amazon, Apple and Netflix all slid more than 3%. Tesla and Nvidia dropped more than 8% and 6%, respectively.

“There is an astonishing level of tech selling right now,” wrote CNBC’s Jim Cramer in a tweet Thursday. “It is breathtaking to watch as sellers are sending the best techs down gigantically at 5 a.m.”

Travel stocks also took a leg lower. United and Delta tumbled 7% each, while cruise line stocks Carnival, Norwegian Cruise Line and Royal Caribbean plummeted 10%. All major sectors declined on Thursday, led by consumer discretionary and energy, down 5% each. Healthcare, which is often seen as recession-proof, also dipped by about 2%.

Staples stocks, known for their steady cash flows that could hold up during recessions, traded into the green or near the flatline. Procter & Gamble gained 1.6%. Colgate-Palmolive and Walmart were slightly higher.

“The Fed has a very tight needle to thread here and I think investors and the market, in general, are losing a good deal of confidence that the Fed might be able to do that,” said Ryan Detrick, chief market strategist at LPL Financial. “The truth is, the Fed is probably behind the eight ball. They should have been hiking more aggressively — probably starting late last year looking back — and the market is realizing that.”

Allianz’s chief investment advisor Mohamed El-Erian echoed a similar sentiment during an interview with “Squawk Box” on Thursday, where he said central banks globally are behind on fighting inflation and undergoing “a great awakening.”

“It’s about time we exit this artificial world of predictable massive liquidity injections where everybody gets used to zero interest rates, where we do silly things whether it’s investing in parts of the market we shouldn’t be investing in or investing in the economy in ways that don’t make sense,” he said. “We are exiting that regime and it’s going to be bumpy.”

Markets on Wednesday initially liked the Fed’s plan to hike interest rates by 75 basis points and the potential of additional hikes of a similar magnitude. The Dow and S&P 500 on Wednesday snapped a five-day losing streak and ended the session higher.

Market sentiment appeared to sour once again Thursday as central banks around the globe adopted more aggressive policy stances and investors questioned whether the Fed can pull off a soft landing.

The Swiss National Bank overnight raised rates for the first time in 15 years. The Bank of England was set on Thursday to raise rates for the fifth straight time.

As stocks fell, the 10-year Treasury yield slipped on Thursday and was last trading around 3.32% after ending May at 2.84% and notching an 11-year high earlier in the week.