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Stocks plunge to lowest levels since 2020 on aggressive rate hikes

Stocks are plunging on Wall Street Thursday as bond yields march higher and put the squeeze back on markets.

The S&P 500 dropped 2.1% as of 11:44 a.m. EST. Nearly every stock in the benchmark index lost ground. The Dow Jones Industrial Average was down 446 points, or 1.5%, to 29,238 and the Nasdaq fell 2.9%.

A day before, stocks jumped and bond yields tumbled in relief after the Bank of England moved forcefully to keep borrowing rates in the United Kingdom from spiking further. That relief was short-lived, however, and Wall Street still remains focused on the Federal Reserve and its aggressive rate hikes aimed at slowing the economy and cooling the hottest inflation in four decades.

"The primary driver of today's slump is the UK as Truss defended her gov't's fiscal agenda, calling it the "right plan" and vowing to press forward with its implementation," analyst Adam Crisafulli of Vital Knowledge said in a market note. "Not until Truss yields on her plans (or provides additional details) will gilts and the GBP truly settle," he said.

U.S. bond yields jumped. The yield on the 2-year Treasury, which tends to follow expectations for Federal Reserve action, fell to 4.23% from 4.14% late Wednesday. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, rose to 3.80% from 3.73%.

Russia's war in Ukraine

"The situation with Russia remains a source of concern too," added Crisafulli. 

Russia confirmed on Thursday it will formally annex parts of Ukraine where occupied areas held Kremlin-orchestrated "referendums" on living under Moscow's rule.

"The referendums could bring a stalemate to the fighting, but this isn't necessarily a "positive" as Europe's energy crisis grows more acute," Crisafulli said. 

However, the United States and its Western allies have sharply condemned the votes as "sham referenda" and vowed never to recognize their results. German Foreign Minister Annalena Baerbock on Thursday joined other Western officials in denouncing the referendums.

 "Under threats and sometimes even (at) gunpoint people are being taken out of their homes or workplaces to vote in glass ballot boxes," she said at a conference in Berlin.

Recession fears bolstered by jobs report

A better-than-expected government report on U.S. layoffs only bolstered expectations that the Fed will keep hiking interest rates and investors are worried that it could hit the brakes on the economy too hard and cause a recession.

The U.S. economy has already contracted for two consecutive quarters, which is one informal measure of a recession. But, the employment market remains strong and consumers continue spending. That has helped bolster the economy and is making it more difficult to get inflation under control.

  • Economy
  • Stock Market
  • Gas Prices
  • Inflation

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