Why Markets Are Down –
The most important reasons why markets are down are inflation and the Federal Reserve’s attempt to tamp down price increases through rate hikes, which have led to concerns about a potential recession.
The Dow Jones Industrial Average closed Wednesday down 1164.52 points, or 3.6%, to 31490.07, its lowest closing level since March 2021. The S&P 500 dropped 4%, or 165.17 points, to 3923.68, while the tech-focused Nasdaq Composite slid 4.7%, or 566.37 points, to 11418.15. The Dow and S&P recorded their worst percentage declines since June 11, 2020.
Major retailers said their profits were hurt by rising costs, sluggish sales, and supply-chain disruptions. Oil prices have been highly reactive in recent months to both Russia’s war against Ukraine, which could disrupt supplies and lockdowns in Chinese cities that sap demand.
The global economy is in danger of entering a period of so-called stagflation, or high inflation and weak growth. Growing fears of high inflation rippled through financial markets Wednesday after large retailers reported disappointing earnings due in part to their own higher costs. Inflation fears have risen in recent days because of new pressures that could further push up prices for oil and food from already-high levels.
The International Monetary Fund said it sees the world’s economy expanding 3.6% this year, down from 6.1% last year. The most recent forecast was 0.8 percentage point lower than its projection in January and a 1.3 point cut from its October 2021 outlook.
When central banks change the interest rate, it impacts both the economy and the stock markets because borrowing becomes either more or less expensive for individuals and businesses. Higher interest rates tend to negatively affect earnings and stock prices.
These are the reasons why markets are down.
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