Markets fall as investors fear the effects of higher interest rates

Stocks fell on Thursday as investors feared that central banks are poised to continue raising interest rates to curb inflation despite signs that economies are already slowing.

The S&P 500 closed with losses of 2.5 percent, adding to subsequent declines. Central Reserve It announced a half-point rate hike on Wednesday. The tech-heavy Nasdaq Composite fell 3.2 percent, down about 31 percent since the start of the year. The Bank of England and the European Central Bank also raised their policy rates by half a point on Thursday.

“Risk aversion is returning as investors focus on global central bank tightening, rising recession risks and soft economic data that suggest the US economy is now weakening in large parts,” said Edward Moya, senior market analyst at forex brokerage OANDA. .

Investors are looking for signs that central banks will slow the pace of tightening. While the Fed and others announced smaller rate increases this week than at previous meetings, none were ready to declare victory over inflation. The Bank of England, which has raised rates at nine consecutive meetings, has assessed that the British economy is already in recession, but has promised a “forceful response” if inflation proves persistent. The European Central Bank He said rates “need to rise further substantially and at a sustained pace” to contain price pressures.

The decline in stocks dragged the index to losses for the week. The S&P 500 is down more than 18 percent since the start of the year. Additionally, 10 of the benchmark index’s 11 sectors have declined so far this year. Energy, the best-performing sector, has risen more than 53 percent since January. On the other hand, the communications services sector, which includes companies such as Walt Disney, Netflix and AT&T, is down about 40 percent since the beginning of the year.

“Markets are constantly taking two steps forward three steps back one step forward and two steps back,” said Ed Cofrancesco, chief executive of International Properties Consulting.

“We believe the market will continue to mambo and make lower lows and lower highs,” Mr. Cofrancesco said. “As part of that mambo, the market is going to overextend the good news and it’s going to overextend the bad news.”

Policymakers at the Fed and other major central banks have expressed their determination to bring stubbornly high inflation under control by raising rates to cool their economies. When asked about the potential economic pain from the Fed’s policies, Fed Chairman Jerome H. Powell said failure to control rising prices would be painful.

“We still have a lot of work to do,” said Mr. Powell said Wednesday that federal officials’ projections show they expect rates to stay higher and stay raised for longer than they previously predicted. It will squeeze the economy hard; Retail sales are worse than expected Despite promotions like Black Friday, data released Thursday showed consumers are wary of spending in November, the traditional start of the holiday shopping season.

Britain’s FTSE 100 fell nearly 1 percent and the pan-European Stoxx 600 fell 2.9 percent.

The yield on the US 10-year Treasury note fell slightly. Oil prices traded lower while the dollar rose 0.8 percent against a basket of other major currencies.

“Businesses are still looking at the bigger picture, we’re going to see a global recession in the first half of next year, and I think recession risks are high,” said OANDA’s Mr. Moya said.

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