Market Report

Stocks fall as global banks ratchet up interest rates

Stocks fell again Thursday, deepening Wall Street’s losses for the week, as central banks around the world increased interest rates to fight inflation.

The S&P 500 fell 0.8%, its third straight drop. The benchmark index was down Thursday about 3% for the week. The Dow Jones Industrial Average fell 0.4%, and the Nasdaq composite lost 1.4%. The Russell 2000 index of smaller company stocks fell 2.3%, a sign investors are worried about the economy. The major indexes are on pace for a fifth weekly loss in six weeks.

Bond yields mostly rose. The yield on the 2-year Treasury, which tends to follow expectations for Federal Reserve action, rose significantly to 4.11% from 4.02% late Wednesday. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, jumped to 3.70% from 3.51% from late Wednesday.

The latest wave of selling reflects concerns among investors that the Fed might have to get more aggressive than it has been signaling to get inflation under control, said Barry Bannister, chief equity strategist at Stifel Financial. That scenario is unlikely if prices stabilize and fall, but it could take more than a year for the process to play out, Bannister said.

“The question is: What’s the patience level for both the Fed and the market?” he said.

Central banks in Europe and Asia raised interest rates a day after the Fed made another big rate increase and indicated that more were on the way.

Britain’s central bank raised its key interest rate by another half-percentage point. Switzerland’s central bank raised its benchmark lending rate by its biggest margin to date, a 0.75 percentage point increase, and said it couldn’t rule out more increases. Central banks in Norway and the Philippines also raised interest rates.

The Fed and other central banks are raising interest rates in an effort to make borrowing more expensive. The goal is to slow economic growth enough to tame inflation but not so much that economies slip into a recession. Wall Street is worried that the Fed could pump the brakes too hard on an already slowing economy, which makes steering into a recession more likely.

On Wednesday, Fed Chair Jerome Powell stressed his resolve to lift rates high enough to drive inflation back toward the central bank’s 2% goal. Powell said the Fed has just started to get to that level with this most recent increase. The U.S. central bank lifted its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%.

The Fed also released a forecast known as a “dot plot” that showed it expects its benchmark rate to be 4.4% by year’s end, a full point higher than envisioned in June.

The S&P 500 fell 31.94 points to 3,757.99 Thursday. The index is now at its lowest level since mid-June and down more than 21% so far this year.

The Dow lost 107.10 points to close at 30,076.68, while the Nasdaq finished down 153.39 points to 11,066.81. The Russell slid 39.85 points to 1,722.31.

The losses were broad and concentrated among retail, technology, financial and industrial stocks. Starbucks Corp. fell 4.4%, Nvidia Corp. dropped 5.3%, American Express Co. slid 3.8%, and United Parcel Service Inc. fell 3.4%.

Health care stocks were among the few bright spots. Johnson & Johnson rose 1.8%.

Companies are nearing the end of the third quarter and preparing for the next big round of earnings reports, although some early reports have trickled in.

Homebuilder Lennar Corp. rose 2% after reporting strong financial results for its fiscal third-quarter. And fellow housebuilder KB Home fell 5.1% after a warning about supply chain problems and a mixed financial report.

Information for this article was contributed by Joe McDonald and Matt Ott of The Associated Press.

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