Los Angeles Times

Big losses on Wall Street as Fed rate worries deepen


Stocks stumbled on Wall Street on Thursday and added to the week’s losses as markets remain anxious about the prospect of more aggressive action by the Federal Reserve to fight inflation.

Major indexes started the day higher and gradually lost ground until they fell sharply in late trading. The Standard & Poor’s 500 fell 73.69 points, or 1.8%, to 3,918.32. It marked the second-worst loss of the year for the benchmark index and further eroded gains made throughout January to kick off the year.

The sharp slide, which pulled down 95% of stocks in the S&P 500, was particular­ly hard on banks. The S&P 500’s financial sector slumped 4.1%.

SVB Financial Group lost 60% of its value after announcing plans to raise up to $1.75 billion in order to strengthen its position amid concerns about higher interest rates and the economy. Bank of America, Citigroup and other big banks fell sharply.

The Dow Jones industrial average fell 543.54 points, or 1.7%, to 32,254.86 and the Nasdaq fell 237.65 points, or 2.1%, to 11,338.35.

The slump follows two days of testimony before Congress by Fed Chair Jerome H. Powell, who said the central bank was prepared to continue making big interest rate increases if necessary. Fears about a persistent­ly aggressive Fed have been weighing on major indexes, all of which are on track for weekly losses.

The Fed’s inflation-fighting policies risk slowing the economy too much and pushing it into a recession, while also going too far in softening a strong labor market and putting many people out of work.

A government report on Thursday showed that the number of Americans applying for unemployme­nt benefits last week jumped by the most in five months, but layoffs remain historical­ly low.

Yields on the two-year Treasury, which tends to track expectatio­ns for future Fed action, eased to 4.87% from about 5.05% just before the unemployme­nt report’s release. It had been hovering at its highest level since 2007.

The unemployme­nt data follow a report on Wednesday showing that the number of job openings advertised across the country last month was higher than economists expected. The U.S. government’s more comprehens­ive report on hiring is scheduled for Friday.

A big concern within the labor market reports is the pace of wage growth. Strong wage gains are good for workers struggling to keep up with high inflation, but they could also keep pushing inflation higher, making it harder for the central bank to fight high prices.

“It’s leading people to try and come to grips with what a stubbornly tight labor market means for economic growth as well as the inflationa­ry environmen­t,” said Keith Buchanan, portfolio manager at Globalt Investment­s.

Wall Street has been reviewing data highlighti­ng both a resilient economy and stubborn inflation. More updates are coming next week when the government releases reports on inf lation at both the consumer and wholesale levels, along with retail sales data.

Traders are leaning toward the Fed raising its benchmark interest rate by 0.50 percentage points on March 22. They had been expecting the central bank to stick with a smaller increase of 0.25 points before Powell’s testimony this week, according to data from CME Group.

“The notion that was in back of minds of investors was that the worst of the tightening cycle was making its way into the rearview mirror and it would take a lot to reaccelera­te tightening,” Buchanan said. “[Powell] put the reaccelera­tion back on the table.”

The Fed’s goal is to bring inflation down to 2%. It stood at 5.4% as of January.

Companies, meanwhile, have been cautious about their prospects through 2023. General Motors fell 4.9% after joining a long list of companies with plans to shed workers amid worries about a recession. Many companies are coming off a weak fourth quarter, with earnings for the broader S&P 500 slipping about 4.6%. Economists expect profits to fall through the first half of 2023.

Investors were also focusing on a mix of corporate news that sent several stocks sharply higher and lower. Toymaker Build-ABear Workshop jumped 21% after reporting strong fourth-quarter financial results.

JPMorgan Chase fell 5.4% after the bank sued its former executive Jes Staley, alleging that he aided in hiding Jeffrey Epstein’s yearslong sex abuse and traffickin­g in order to keep the financier as a client.

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