Dow Jumps 400 Points Even As Experts Warn Recession Could Lead To Further Stock Selloff

Topline

Stocks moved higher on Tuesday as the market attempted to recover from its worst week since March 2020, despite the fact that investors widely remain nervous about surging inflation and rising rates leading to a recession.

Markets rallied despite ongoing recession fears, with experts predicting more downside ahead.

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Key Facts

Stocks bounced back somewhat after a heavy week of losses: The Dow Jones Industrial Average rose 1.4%, over 400 points, while the S&P 500 gained 1.8% and the tech-heavy Nasdaq Composite 1.9%.

Markets are coming off of their worst weekly performance since March 2020, with the S&P 500 falling nearly 6% last week as investors worry that aggressive rate hikes from the Federal Reserve will hurt economic growth.

Experts have increasingly been warning that the Fed won’t be able to achieve a soft landing and will instead plunge the economy into a recession as it scrambles to raise interest rates further in an effort to combat 41-year high inflation.

“At least equity markets are kicking off the week on a positive note,” says Bespoke Investment Group, adding, “obviously, where we end up today is an entirely different story… it doesn’t take much to erase a market rally these days.”

Morgan Stanley chief U.S. equity strategist Mike Wilson puts the odds of a looming recession at 50%, predicting that markets will have a “really hard time” with stocks set to fall by another 15% to 20% if a downturn happens.

Consumer and tech stocks were among the best-performing sectors of the market on Tuesday: Some airline stocks rallied on hopes for a rebound in summer travel, while shares of Big Tech companies also rebounded despite being hard-hit in recent weeks.

Tangent:

The price of Bitcoin, meanwhile, rebounded back to around $20,000 on Monday after falling below $18,000 during the weekend—a new low point for 2022, with the cryptocurrency now sitting roughly 70% off its record highs from last November.

Crucial Quote:

“There’s not a single reason for the bounce in equities, and the overwhelming view is dismissing the uptick as being nothing more than dead cat, something that should be faded just like all the other rally attempts lately,” says Vital Knowledge founder Adam Crisafulli.

Key Background:

Markets are still digesting the latest rate hike from the Federal Reserve, which raised interest rates by 75 basis points last Wednesday. It was the central bank’s biggest rate increase in 28 years, with Fed Chair Powell hinting at a similarly large increase for the central bank’s next policy meeting in July. The S&P 500 sits in bear market territory—23% below its record highs at the start of the year, while the Nasdaq has plunged 33% from its highs last November. The Dow, meanwhile, fell to its lowest point so far this year last Friday, falling below the 30,000 mark after a nearly 5% decline last week.

What To Watch For:

Investors will be watching closely as Fed Chair Jerome Powell delivers his semiannual report on monetary policy to Congress on Wednesday and Thursday.