Dow Plunges 400 Points As Wall Street Banks Warn Of ‘Significant Downturn’ And Raise Recession Odds

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Top Line

Stocks fell on Wednesday as a growing number of Wall Street firms warned that a recession was likely to rise sharply, predicting that markets could tank even further as the Federal Reserve aggressively lowers interest rates to tackle inflation. Increases.

Key Facts

Markets rebound from a day earlier as stocks tumble once again: The Dow Jones Industrial Average fell 1.4%, more than 400 points, while the S&P 500 fell 1.3% and the tech-heavy Nasdaq Composite fell 1.1% .

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Adam Crisafuli, founder of Vital Knowledge, describes, “Stocks have been reversing their gains since Monday amid ongoing concerns about the outlook for economic growth (sell-side firms and other forecasters are predicting a downturn on a daily basis). .

Citigroup became the latest Wall Street bank to raise its bearish outlook, predicting a 50% chance of a recession as consumer demand “starts to soften”.

“The best-case scenario is a ‘soft landing’ with a modest increase in the unemployment rate, but rising risks of a more significant recession,” Citi analysts wrote in a recent note.

Goldman Sachs on Tuesday put the prospect of a recession at 30% in the next year and about 50% in the next two years, while the Federal Reserve’s tighter monetary policy slashed GDP forecasts by up to 2%.

Meanwhile, strategists at Morgan Stanley raised their forecast to a 35 percent chance of a recession next year and predicted the S&P 500 could fall by another 20% as rising inflation remains “very stubborn.”

tangent line:

Energy stocks were among the biggest losers during Wednesday’s selloff as oil prices plunged: Shares of Exxon Mobil, Occidental Petroleum and Marathon Oil were down 3% or more. Despite recent losses, the S&P 500 energy sector remains the market’s best performing sector this year, growing more than 30%.

Important Quote:

“In the latest example of two steps back, one step forward market, most of yesterday’s rally, which was not enough to erase the decline of the previous two trading days, is mostly set to erase at the open,” says Bespoke Investment Group.

What to look for:

Investors will be watching Fed Chair Jerome Powell’s testimony before Congress on Wednesday and Thursday, where he will face questions from lawmakers about the central bank’s plan to tackle decades of high inflation.

Main background:

Experts are increasingly fearful that the Fed will plunge the economy into recession as it continues to aggressively raise interest rates. The central bank last week raised rates by 75 basis points – the biggest increase in 28 years, while indicating a similarly large rate hike at the next policy meeting in July. Markets plunged last week to their worst weekly performance since March 2020, despite the Fed’s decisive action, with the S&P 500 falling nearly 6%. The benchmark index remains in bear market territory with the tech-heavy Nasdaq falling nearly 23% and 33%, respectively, from its record highs.

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The Dow jumped 600 points even as experts warned the bearish could lead to further selling in the stock (Forbes,

The stock market could fall another 20% if the U.S. plunges into recession – these industries are most at risk (Forbes,

Stocks ‘deafening’ recession worries amid worst week since March 2020Forbes,

How to invest during a recession: Why experts choose these stocks during economic turmoilForbes,

Credit: www.forbes.com /

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