Dow Falls Nearly 300 Points, Treasury Yields Surge As Experts Warn Of A Hard Economic Landing

Topline

Stocks fell and rates on government bonds surged on Wednesday as investor concerns about a slowdown in economic growth continued to weigh on markets, while oil jumped to a 13-week high on the back of climbing U.S. gas prices.

Stocks will struggle for direction until there are “clear signs” that the Fed is taming inflation, … [+] analysts say.

Seth Wenig/ASSOCIATED PRESS

Key Facts

The stock market moved lower amid ongoing economic uncertainty: The Dow Jones Industrial Average fell 0.8%, nearly 300 points, while the S&P 500 lost 1.1% and the tech-heavy Nasdaq Composite 0.7%.

Rates on government bond yields surged higher as recession fears continued to weigh on investor sentiment, with the ten-year Treasury note once again surpassing 3%.

Many experts are warning that the economy is heading for a hard landing as the Federal Reserve tries to combat inflation by aggressively raising interest rates: The Atlanta Federal Reserve recently predicted that GDP will grow just 0.9% in the second quarter, down from a previous estimate of 1.3%.

Oil prices also spiked higher, hitting a 13-week high amid rising demand for U.S. gasoline, which is averaging more than $5 per gallon in over a dozen states: U.S. benchmark West Texas Intermediate rose to $122.5 per barrel, while international benchmark Brent crude now sits at $124 per barrel.

Energy giant Exxon Mobil hit a new all-time high of nearly $105 per share on Wednesday, with analysts predicting further upside due to rising oil and gas prices—even after the stock’s momentous 65% gain so far this year.

Investor anxiety around corporate earnings also weighed on markets, especially after negative profit outlooks from the likes of Credit Suisse and Intel on Wednesday, shares of which fell over 1% and 5%, respectively.

Tangent

Shares of tobacco giant Altria, meanwhile, dropped 7% after Morgan Stanley analysts downgraded the stock, warning that inflation will hurt consumers’ wallets and subsequently demand for cigarettes.

What To Watch For

Investor sentiment still remains “precarious” and “on the nervous side,” in large part due to concern about the upcoming consumer price index reading on Friday—with the potential for inflation to come in “a bit firmer than anticipated,” says Vital Knowledge founder Adam Crisafulli.

Crucial Quote

“Stock market rallies at this point will likely see headwinds and not meaningful follow-through until there are clear signs the Fed is succeeding in controlling inflation,” according to a recent note from Wells Fargo strategist Scott Wren. “Positive consumer data could also help relieve some growth fears but, in some circumstances, could also further concerns that the Fed needs to get more aggressive to cool demand.”

Contra:

“The tone of the market has improved, with less volatility and intraday swings than a month ago, suggesting less emotional decision making,” says Mark Hackett, Nationwide’s chief of investment research. “Several significant fundamental challenges remain, but a more balanced reaction from investors is encouraging.”