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Wall Street’s drop resumes as specter of economic slump hangs over markets

The New York Stock Exchange building is seen, Tuesday, Sept. 27, 2022, in the Financial District of New York.Mary Altaffer/Associated Press

Stocks slid Thursday, adding to a brutal downdraft that has been fueled by investors’ unceasing concerns about the health of the economy and dragging Wall Street to its lowest point since late 2020.

The backdrop for Thursday’s selling was the same as it has been for weeks: Investors fear a recession as central bankers take a hard line against inflation, looking to cool the economy by raising interest rates. Stocks have whipsawed all year, tracking shifting forecasts for inflation, interest rates and growth, but the latest wave of selling has pulled major indexes in the United States to new lows for the year.

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On Thursday, the S&P 500 fell 2.1%, its sharpest daily drop in over two weeks, a loss that means the index has fallen in seven of the last eight trading days and plunged more than 6% in that period. After a 24% decline this year, the S&P 500 is trading at levels last seen in November 2020.

The nervousness among investors was evident in other markets as well, and shares in Europe, government bonds and oil prices were all lower.

An economic firestorm in Britain over the past few days added to the turmoil in global markets, after the British government announced last week a new tax-cut plan that sent bond markets into a tailspin as investors worried about a surge in borrowing. Government bonds, considered a safe investment, plummeted in value in the wake of that announcement, raising widespread concern about the ability of the financial system to withstand the shock.

Such tremendous volatility in bond prices over the past week has become a hallmark of financial markets this year, as rapidly rising interest rates have led to sharp changes in the value of government debt. It took an intervention Wednesday by the Bank of England, which pledged to buy British government bonds on “whatever scale is necessary,” to calm down investors.

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By Thursday, trading in government bonds in both Britain and the United States was calmer, though still uneasy, and yields rose as prices fell. In the United States, the yield on the 10-year Treasury note rose to about 3.76%, after briefly crossing 4% Wednesday for the first time since October 2008. In Britain, the yield on the 10-year gilt, or bond, also rose, to 4.14%.

While the chaotic response to Britain’s spending plan added a new layer of concern, the main driver of Wall Street’s unease this month — and for most of the year — has been the threat posed by inflation that’s running at its fastest pace in four decades.

The Federal Reserve, led by Jerome Powell, has been adamant about its intention to cool the economy, suggesting that it is willing to do so even if it means tipping the country into a recession. Fed officials are hopeful that they will be able to bring inflation down to their 2% target rate without triggering an economic downturn, but investors and economists are skeptical.

Analysts say the market’s worry won’t end until central bankers see that the economy is slowing down — which in turn might prompt the Fed to pause its interest-rate raising campaign.

“That’s about the only thing that’s going to slow the Fed is if unemployment starts rising very, very rapidly,” said Victoria Greene, chief investment officer at G Squared Private Wealth.

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Though broad measures of economic activity in the United States show that growth has been somewhat anemic this year, there are few signs that the labor market is slowing sharply. Economists expect the government to report on Oct. 7 that employers added about 250,000 jobs in September, a survey by Bloomberg showed, and that the unemployment rate held steady at 3.7%.

Investors will get a number of other economic updates in the days ahead, including more data Friday on inflation in Europe and the United States. On Thursday, Germany reported that consumer prices there rose at a 10.9% annual rate as energy and food costs soared.

The pan European Stoxx 600 index fell 1.7%, and the London’s FTSE 100 fell 1.8%. Tokyo’s Nikkei 225 rose 0.95%, and Hong Kong’s Hang Seng fell 0.49%.

The price of West Texas Intermediate crude oil fell 92 cents, settling at $81.23 a barrel.