Wall Street has lost trillions of dollars as investors took flight amid concerns that more interest rate hikes by the US central bank would not be enough to curb surging inflation.
- The Dow Jones index fell 3.1 per cent to 32,998, the S&P 500 fell 3.5 per cent to 4,147, and the Nasdaq fell 5 per cent to 12,318
- The VIX volatility index climbed to 31.20 points
- The Bank of England approved a 0.25 per cent rise taking the benchmark interest rate to 1 per cent
The delayed reaction came a day after the US Federal Reserve raised the federal funds rate by 50 basis points and Fed chairman Jerome Powell said there was more half-a-per-cent rate increases to come over the next couple of months.
Traders raised their bets of a 75-basis-point rise in June, even though Mr Powell all but ruled that out.
Rising interest rates, the war in Ukraine, COVID-19 lockdowns in China are all weighing on investor confidence.
The Dow Jones Industrial Average plunged 3.1 per cent, to 32,998, the S&P 500 dropped 3.5 per cent, to 4,147, and the Nasdaq plummeted 5 per cent, to 12,318, reversing yesterday’s rally.
That’s the lowest level for the Nasdaq since November 2020 and the lowest for the Dow since October 2020.
All 11 major S&P industry sectors declined, with consumer discretionary stocks leading the falls.
The VIX volatility index climbed to 31.20 points.
Big tech companies were sold off — including Google, Apple, Microsoft and Amazon — because higher interest rates will increase their borrowing costs, and tech firms have relied on cheap finance to expand.
That saw $1.3 trillion ($1.8 trillion) wiped off the value of the world’s biggest technology firms.
Payments firm Block plummeted to a first-quarter loss as cryptocurrency bitcoin prices declined.
Block made a net loss of $US204 million, or 38 US cents a share, compared with a profit of $39 million a year earlier.
Twitter was one of the few stocks to rise.
Bank of England rate hike
With inflation climbing to 10 per cent because of Russia’s invasion of Ukraine and China’s COVID-19 lockdowns, the Bank of England has lifted its official interest rates to a 13-year high.
The UK central bank’s Monetary Policy Commission approved a 25-basis-point rise by a majority of six to three, which took the benchmark interest rate to 1 per cent.
Its three dissenting members wanted a 0.5-per-cent rise because inflation has been running at 7 per cent in the UK because of the higher cost of goods.
It was the fourth rise in a row since December.
The FTSE rose 0.1 per cent, to 7,503, the DAX in Germany dropped 0.5 per cent, to 13,903, while the CAC 40 in Paris lost 0.4 per cent, to 6,368.
Meanwhile, the pound plunged as the BOE warned about the risk of a recession.
The Australian dollar was sold off overnight.
At 6:50am AEST, it was buying around 71.11 US cents, down 2.1 per cent.
The Australian share market is set to fall as well, with the ASX SPI 200 index down 1.5 per cent, to 7,217.
Oil prices jumped overnight, with Brent crude up 1 per cent, to $US111.19 a barrel, while spot gold was down 0.2 per cent, to $US1876.84 an ounce.