Stocks slid on Thursday, continuing a volatile stretch of trading brought on by uncertainty about inflation, rising interest rates and the potential for war in Europe.
The S&P 500 fell 2.1 percent, dropping into negative territory for the week, while the Nasdaq composite fell 2.9 percent.
Tech companies were some of the worst performers, with Meta, Facebook’s parent, down more than 4 percent. Alphabet, Google’s parent, fell 3.8 percent, and Microsoft was down 2.9 percent.
Tesla, one of the largest companies in the S&P 500, dropped 5.1 percent. The main auto-safety regulator in the United States said it was investigating reports from Tesla’s customers of “phantom braking” when they were using their vehicles’ driver-assistance system.
Shares of banks also fell, with Morgan Stanley dropping 5 percent and Wells Fargo losing 3.4 percent.
Understand Inflation in the U.S.
- Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.
- Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.
- What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.
- Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.
The prospect of a Russian invasion of Ukraine has weighed on global markets. On Tuesday, the stock market rose after Russian officials announced a partial troop withdrawal from the Ukrainian border. But President Biden said on Thursday that the possibility of an invasion remained “very high,” and shelling between Ukraine and Russia-backed separatists spiked, raising concerns that the conflict was heating up.
“Markets are concerned about the Russian troop buildup and a lack of trust in Putin’s declaration that they are beginning to remove troops from the region,” said Chris Zaccarelli, the chief investment officer for Independent Advisor Alliance, an investment advisory firm.
Investors have also been anticipating that the Federal Reserve will increase interest rates as it looks to fight persistently high inflation. Raising the Fed’s policy rate can lead to higher interest rates for houses and cars, causing spending to slow and inflation to moderate. But it also can increase the return on bonds, making riskier investments like stocks less appealing.
Minutes released on Wednesday from the Fed’s January meeting showed that most officials agreed that they might need to withdraw their support for the economy even more quickly if inflation does not cool down as they expect. Investors are now anticipating that the Fed’s policy rate could rise to more than 1.75 percent by the end of the year, up from nearly zero.
Yields on the 10-year Treasury note, which last week crossed 2 percent for the first time since 2019, fell about eight basis points, or 0.08 percentage points, to about 1.96 percent. Yields fall as prices for bonds rise, which happens when investors buy them as they move money out of riskier investments like stocks.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Where is inflation headed? Officials say they do not yet see evidence that rapid inflation is turning into a permanent feature of the economic landscape, even as prices rise very quickly. There are plenty of reasons to believe that the inflationary burst will fade, but some concerning signs suggest it may last.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
“The concerns for growth going forward and recession risks are new to traders’ minds,” said Edward Moya, a senior market analyst at OANDA. “There’s a lot of fear that the optimistic growth outlook for 2023 is up in the air.”
But the broad nature of Thursday’s sell-off pointed to more than one trigger. Oil has been trading at prices not seen since 2014, and an invasion by Russia, a big oil producer and Europe’s largest supplier of natural gas, would almost certainly push energy prices higher. But on Thursday, oil fell, with West Texas Intermediate, the U.S. crude benchmark, down 2 percent, to about $91.76 a barrel. Natural gas fell more than 4 percent.
The consumer staples sector was one of the few that did not fall on Thursday. Walmart was one of the best-performing companies in the S&P 500, climbing 4 percent after it reported that its revenue rose to $152.9 billion, up 0.5 percent in the three months ending in January from a year earlier. The company also said that sales across its U.S. business increased 5.7 percent to about $105 billion in the quarter.
In Europe, stock indexes edged lower. The Stoxx Europe 600 fell 0.7 percent on Thursday. Asian markets closed mixed.