Wall Street stocks plunged after a handful of central banks around the world followed the Federal Reserve and raised interest rates to stymie soaring inflation.
The Standard & Poor’s 500 index, already in a bear market (defined as at least 20% below its record high), closed down 123.22 points, or 3.25%, at 3,666.77.
The Nasdaq, the first index to drop into bear market territory earlier this year, ended down 453.06 points, or 4.08%, at 10,646.10.
The Dow ended down 741.46 points, or 2.4%, at 29,927.07, narrowly escaping a bear market again but analysts say it’s likely just a matter of time before the Dow will fall, too.
“The S&P 500 and Dow often are different over a short period, but over time they correlate well,” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said.
Taiwan’s central bank raised its benchmark discount rate by 12.5 basis points to 1.5% and lowered its economic growth outlook for the year.
In Europe, the Bank of England lifted its key rate by 25 basis points to 1.25%, while delivering more sour news. It warned inflation will soar to at least 11% this autumn (from 9% in April) when the cap on energy bills is next lifted, and that the UK economy will shrink by 0.3% this quarter.
The shocker was the Swiss National Bank, which increased its policy rate to -0.25% from -0.75%, the first hike since September 2007.
All of this is on the heels of the Fed’s 75-basis-point increase in the benchmark fed funds rate late Wednesday. That was the largest increase since November 1994, meant to rein in the highest consumer inflation rate in 40 years.
Housing market slowdown
The housing market, which was red-hot during the pandemic era of near-zero rates, is reeling from the effects of higher U.S. rates.
U.S. housing starts declined 14.4% last month to a 1.55 million annualized rate, the lowest in more than a year and the largest one-month decline since April 2020, government data showed. Applications to build also fell to an annualized 1.7 million units, the lowest since September. These suggest pressure on housing construction as higher rates take their toll on demand.
Average long-term U.S. mortgage rates had their biggest one-week jump in 35 years after the Fed’s supersized rate hike on Wednesday. The average 30-year, fixed-rate mortgage rate spiked by 55 basis points to 5.78% for the week ending Thursday, June 16 from 5.23%, according to Freddie Mac.
“To put that figure into perspective, a $300,000, 30-year, fixed-rate mortgage with a rate of 5.23% would cost a borrower about $1,653 a month (excluding other costs like taxes and insurance),” said Jacob Channel, LendingTree senior economist. “That same loan would cost a borrower $1,756 at today’s new average rate of 5.78%. That’s an extra $103 a month, $1,236 a year, and $37,080 over the lifetime of a loan, he said.”
This is a developing story.