Dow Drops 1,000, Nasdaq Loses Nearly 5% on Worst Day of Year for Stocks

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Stocks had their worst day of the year on Thursday, retreating sharply and completely erasing a rally from the previous session in a stunning reversal that compounded the market’s losses for 2022.

The Dow Jones Industrial Average lost 1,100 points, or more than 3%. The S&P 500 and Nasdaq Composite fell 3.7% and 4.9% respectively.

The moves come after a major rally for stocks on Wednesday. The Dow rose 932 points, or 2.81%, and the S&P 500 gained 2.99% for its biggest gain since 2020. The Nasdaq Composite was up 3.19%.

Those gains were all erased before noon in New York on Thursday.

“If you go up 3% and then you give up half a percent the next day, that’s pretty normal… extraordinary,” said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research.

S&P 500’s Worst Days of 2022

Date Reject
5th of May -3.72%
April 29 -3.63%
March 7th -2.95%
26 April -2.81%
April 22nd -2.77%

Major tech stocks were under pressure, with Facebook parent Meta Platforms and Amazon dropping 5.8% and 7.1% respectively. Microsoft fell 4.7%. Salesforce fell 6.3%.

Ecommerce stocks were a major source of weakness on Thursday after some disappointing quarterly reports.

Etsy and eBay were down 15% and 8%, respectively, after releasing disappointing revenue forecasts. Shopify dropped more than 17% after missing estimates on the top and bottom lines.

The declines put the tech-heavy Nasdaq on track for one of its worst days since the start of the pandemic.

Nasdaq’s Biggest Drops Since March 2020

Date Reject
March 16, 2020 -12.32%
March 12, 2020 -9.43%
March 9, 2020 -7.29%
June 11, 2020 -5.27%
May 5, 2022 -5.02%

The Treasury market also saw a dramatic reversal from Wednesday’s rally. Ten-year government bond yields, which move inversely to price, rose again above 3% on Thursday, reaching their highest level since 2018. Rising interest rates could put pressure on growth-oriented technology stocks as they make distant gains less attractive to investors.

On Wednesday, as expected, the Fed raised its benchmark rate by 50 basis points, saying it would begin deleveraging its balance sheet in June. However, Fed Chair Jerome Powell said in his press conference that the central bank is “not actively considering” a larger 75 basis point rate hike, which appeared to spark a rally.

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Still, the Fed remains open to the prospect of moving interest rates above neutral to curb inflation, noted Zachary Hill, head of portfolio strategy at Horizon Investments.

“Despite the tightening we have seen in the financial conditions in recent months, it is clear that the Fed would like to see them tighten further,” he said. “Higher stock valuations are incompatible with that desire, so unless supply chains heal quickly or workers flow back into the workforce, stock rallies are likely to be on borrowed time as the Fed’s messages become more aggressive again.”

Stocks that leveraged economic growth also took a beating on Thursday. Caterpillar lost 3% and JPMorgan Chase lost 3.5%. Home Depot sank more than 5%.

David Rubenstein, co-founder of Carlyle Group, said investors need to “get back to reality” about the headwinds for the markets and the economy, including the war in Ukraine and high inflation.

“We’re also looking at a 50 basis point increase for the next two FOMC meetings. So we’re going to tighten it up a little bit. I don’t think that’s going to get so strong that we slow down but we still have to recognize that in the United States face some real economic challenges,” Rubenstein said on CNBC’s “Squawk Box” on Thursday.

Thursday’s sell-off was broad, with more than 80% of S&P 500 stocks falling. Even the outperformers of the year lost ground, with Chevron, Coca-Cola and Duke Energy all taking relatively small losses.

Some Wall Street strategists had suggested that markets may see some relief following the rate hike. Following Powell’s comments, investors appeared to be comfortable with the central bank’s ability to slow inflation without triggering a recession. The S&P 500 and Nasdaq Composite hit their lowest level of the year earlier this week, following a rough April for stocks that may have left some areas of the market oversold and ready for a short-term bounce.



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