Another bloodbath rocked Wall Street yesterday as traders fully digested what an aggressive Fed will mean for the markets. The odds of a recession are rising fast with Jay Powell attempting to tackle inflation by reducing demand in a supply-constrained world (and risking labor market gains in the interim). The shakeup saw the Dow Jones Industrial Average tumble below the key 30,000 level for the first time since January 2021, while the S&P 500 and Nasdaq plunged further into bear market territory.
“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… We are exiting that regime and it’s going to be bumpy.”Mohamed El-Erian, Chief Economic Advisor at Allianz.
The Fed isn’t alone. The Bank of England raised rates for the fifth time in a row on Thursday as it tries to get inflation under control. The Swiss National Bank also hiked its benchmark for the first time since 2007, showing how the trend towards raising rates is catching on across the globe.
Today, despite opening high, the market reversed track and fell back to red. Guess the bear is here to stay.