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Monitors display breaking news regarding the Dow Jones industrial average on the trading floor at the New York Stock Exchange in New York City, the US, May 5 2022. Picture: ANDREW KELLY/REUTERS
Monitors display breaking news regarding the Dow Jones industrial average on the trading floor at the New York Stock Exchange in New York City, the US, May 5 2022. Picture: ANDREW KELLY/REUTERS

A day after celebrating the Federal Reserve’s signal that it wouldn’t be making any big moves, traders woke up on Thursday deciding that the central bank will struggle to fight high inflation amid the lingering threat of a recession.

In a sharp about-face, investors sold stocks, bonds and cryptocurrencies on Thursday. The S&P 500 Index lost 3.6%, erasing about $1.3-trillion of market value, and the tech-heavy Nasdaq 100 dropped 5.1%, the most since September 2020.  The Dow Jones industrial average tumbled 3.12%.

“The great puking that’s happening? I didn’t expect that,” Kim Forrest, founder and chief investment officer at Bokeh Capital Partners said by phone.

US Treasury yields jumped as investors worried aggressive central bank policies around the world to tamp down inflation could shackle growth. The yield on 10-year Treasury notes rose 12.2 basis points to 3.037%.

Speculative corners of the market were among the hardest hit, with an index of expensive software stocks sliding more than 10%, the most since mid-March 2020. An ETF tracking newly public companies lost 7.6%, while non-profitable tech firms lost roughly 11%, as bitcoin — the largest cryptocurrency — dropped by the same amount to just above $36,000. 

“There’s still a lot of fear out there,” said Dennis Dick, head of markets structure and a proprietary trader at Bright Trading. “People thought yesterday was the green light, but now they’re getting caught again. Retail traders keep coming in and getting chopped up. The contrarians have been winning 2022.”

“The only thing that will lead to a sustained turnaround is if we see inflation start to not look so hot,” he added. “Any rally that isn’t on improving inflation is a sucker’s rally.”

Bloomberg News. More stories like this are available on bloomberg.com

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