Wall Street closes lower Thursday amid heightened recession fear

Wall Street’s major indexes closed lower Thursday as investors projected that the U.S. economy would enter a recession.

The Dow Jones closed at 33,044.56, losing 252.40 points or 0.76 percent. The S&P 500 — a benchmark index that tracks stocks in top U.S. companies — fell by 30.01 points or 0.76 percent to trade at 3,898.85. NASDAQ posted a 104.74 points loss, or 0.96 percent, and closed at 10,852.27.

Within the S&P index, more than 75 percent of the stocks concluded the trading session in the red. The biggest weights on Thursday were the tech, retail and industrial sectors.

Chip-maker Nvidia posted a 3.5 percent loss, Home Depot fell by four percent and Deere & Co. lost 4.1 percent by the end of the session.

Investors are anxious that the Federal Reserve and central banks in other developed economies will maintain their hawkish monetary policies. Analysts predicted that continuous interest rate hikes would tip the Western economy into recession.

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Central banks use interest rate hikes to tame inflation. By slowing down the economy, central bank officials expect that price increases will slow down as well. However, recent data showed contradicting findings.

Although some sectors have displayed signs of cooling inflation, the overall inflation rate is still above the Fed’s two percent target. Furthermore, analysts have noted that the job market in the U.S. remains robust, which can cause unwanted wage growth.

On Thursday, Fed governor Lael Barnard made a public statement affirming the central bank’s plan to keep the interest rates high. The Fed’s current rate ranges from 4.25 percent to 4.50 percent.

The Fed will hold another rate-setting meeting on February 1. Investors predict a quarter of a percentage point increase, which is smaller than the previous 75 basis points hike.

The U.S. stock market typically moves according to the latest inflation data. Manulife chief investment strategist Kevin Headland said the market had started to shift its mindset.

In 2022, investors would be more optimistic if inflation data indicated a weakening economy because it would mean that the Fed would make a policy pivot.

However, poor housing data published on Thursday showed that the market became wary of weak economic signs. Headland explained that it displayed the market’s shift of focus from macro to micro.

“I think the market is starting to realize this is ... less of an issue with the Fed and more so an issue with economic weakness and perhaps the risk of recession, which would feed through the earnings growth environment."

Kevin Headland, Chief Investment Strategist at Manulife.

Other markets

East Asian equity markets rose on Friday. The Shanghai Composite Index gained 0.6 percent to trade at 3,260.04. Meanwhile, Tokyo’s Nikkei 225 index rose by 0.1 percent to 26,411.94. Hong Kong’s Hang Seng gained 0.9 percent, trading at 21,844.98. The Kospi index in Seoul also rose by 0.2 percent to 2,384.47.

Major indexes in Southeast Asia and New Zealand also gained on Friday. Sydney’s S&P-ASX 200 gained less than 0.1 percent, trading at 7,439.50.

The energy market also thrived. The U.S. crude oil rose by 40 cents to trade at $81.01 a barrel on the New York Mercantile Exchange. The price for Brent crude — a benchmark for global oil trading — increased by 32 cents to $86.48 a barrel in London.

The greenback managed to gain over yen, trading at 128.76 yen per dollar. Meanwhile, the euro strengthened over the U.S. currency and traded at $1.0836.