The Dow Jones Industrial Average lost 1,297 points, or 3.8 percent, on May 5, one day after the market rallied to the Fed’s raising of interest rates, with stocks suffering their worst losses of 2022 and one of its worst days since the start of the pandemic.
The day’s massive tumble completely reversed the market’s gains from the May 4 rally, further deepening the losses for 2022, with the S&P 500 falling 3.56 percent and the Nasdaq Composite falling 4.99 percent.
The S&P 500 and Nasdaq Composite had hit the lowest levels at the beginning of the week after poor April results, as some areas of the market were oversold, priming it for a short-term bounce.
After the Fed increased interest rates by 50 basis points on May 4, the Dow surged 932 points, or 2.81 percent, with the S&P 500 gaining 2.99 percent, its biggest gains since May 18, 2020.
The Nasdaq Composite also jumped 3.19 percent on May 4, but all of those gains were erased the following day.
The May 4 rally was sparked by comments from Federal Reserve Chairman Jerome Powell, who said the central bank was “not actively considering” hiking its benchmark interest rate by 75 basis points at its next meeting, which immediately sent stocks higher and the dollar and Treasury yields lower.
However, Powell’s moderate approach still promises more consecutive 50-basis-point rate hikes, and he said that it would take a cooling of skyrocketing inflation or deterioration in the jobs market before the central bank would act to slow down the pace of rate increases.
It is anticipated that the Fed will increase interests rates by 50 basis points at its next two meetings.
Michael Reynolds, vice president of investment strategy at Glenmede, told MarketWatch the Fed is planning to shrink its nearly $9 trillion balance sheet starting in June, particularly if the economy enters the late stage of an expansion.
By Bryan Jung