A tumultuous year for the stock markets continues, as the Dow Jones Industrial Average tumbled nearly 2.5% on Friday to below 30,000, marking a new low for 2022. In early January, the Dow reached an all-time high of 36,799, and this latest drop means that the index has fallen more than 20% from that peak, putting it into bear market territory, and is the lowest it’s been since 2020, after the pandemic crushed the markets.
Similarly, other market indexes hit the skids as well. The S&P 500, for example, fell more than 2% during intraday trading, and was at 3,664 as of 12:30 p.m. ET on Friday. The Nasdaq was also down more than 2%. In all, it was a rout for the markets, which are reeling following another aggressive interest rate hike of 75 basis points, announced by the Federal Reserve on Wednesday.
As with previous increases, that rate hike comes in response to inflation that continues to hover near 40-year highs. By raising interest rates, the Fed is effectively making it more expensive for businesses and consumers to borrow, depressing demand for goods and services. That, theoretically, should slow the economy down, and lower prices—though many financial experts and business leaders have warned that the Fed runs the risk of tipping the economy into a recession.
While fears of a recession have been bubbling up for a good portion of the year, it’s hard to say if we’re actually in one, given that unemployment is still low, and that consumer spending numbers have remained relatively good, all things considered. But the falling stock market—which has been on a downward slide for most of the year—is causing sentiment to trend downward. For example, investment banks like Goldman Sachs have cut their year-end forecasts in response to the Fed’s latest rate hike, according to The Wall Street Journal.
While the market drops and investors white-knuckle it through the rest of the trading day, it may be a good idea to put things in perspective. While the Dow did hit a record high earlier this year, it was not even two years ago that the index passed the 30,000 mark for the first time, enjoying a pandemic-fueled bull run that lasted until January 2022.
So, while the major market indices indicate that this week amounted to a bloodbath for investors and that forecasts are dimming, sentiment may change if the newest Consumer Price Index numbers, due out in October, show improvement or if jobs data shows positive signs for the economy.
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