Markets, Media Shares End Session Sharply Lower Amid Recession Fears – Update

Stocks posted steep losses across the board Thursday after a major rate hike by the U.S. central bank and comments by Fed chief Jerome Powell exacerbated recession fears.

The Dow plunged by more than 700 points, closing below 30,000 for the first time since January 2021. The Nasdaq sank by more than 4%, down by more than 30% year-to-date. The S&P 500 dropped 3.25% to its lowest level since December 2020.

A decisive move by the Federal Reserve to raise interest rates by three quarters of a percentage point boosted shares briefly  Wednesday, but optimism faded fast following what was the biggest rate hike since 1994. Powell said at a press conference that the Fed’s Open Market Committee could announce another, similar raise at its July meeting (it upped rates by half a point last month) to try to tame soaring inflation, which is at a 40-year high).

Entertainment shares took a bath with Warner Bros Discovery falling 8%, among the hardest hit as JP Morgan initiated coverage today with a “neutral” rating and a price target of $22.

Paramount and Comcast dipped by 5.5%, Netflix by nearly 4%, and Disney by 1.7%. BofA analyst Jessica Reif Ehrlich said in a note this morning that “recent macro volatility is starting to have an impact on the advertising market. While companies that spend into a recession often emerge stronger, the market is tepid due to advertiser concerns over labor shortages, inflation and supply chain issues.”

Tech is also hurting with Facebook parent Meta, Google parent Alphabet, Amazon, Apple, Snap and Spotify all lower.

Twitter was a rare stock in the green in early trading ahead of a planned virtual staff meeting with Elon Musk but dipped later, ending down 1.66%. Musk appears to be moving forward with his tortured $44 billion takeover of the social media platform.

The looming question is whether the Fed can engineer a so-called “soft landing” for the economy or if the cascade of interest-rate hikes will trigger a recession.

Right now, Powell said, the central bank is targeting a federal-funds rate of 3.4% at the end of this year, of 3.8% at the end of next year and a declines back to 3.4% in 2024. The Fed’s goal is to get inflation down to around 2%. In May, the 12-month change in the Consumer Price Index came in above expectations at 8.6%. Powell noted that some elements of inflation are beyond the Fed’s control like the surge in crude oil and food prices due to the Russia-Ukraine war and lingering supply chain glitches related to Covid-related shutdowns in China.

“Over coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2%,” said Powell, acknowledging that the 75-basis-point rate increase was “an unusually large one.”

“There’s always a risk of going too far or going not far enough. And it’s going to be a very difficult judgment to make, or maybe not. Maybe it’ll be really clear. But we’re quite mindful of the dangers. But I will say, the worst mistake we could make would be to fail, which it’s not an option,” he said.