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Correction: We reported in this segment that U.S. financial markets had their worst day since the start of the pandemic. It should have stated that the markets had their worst day since 2020, after the pandemic began.
The stock market had its worst day since 2020 on Thursday, just one day after the Dow Jones Industrial Index average posted its best day in years. Washington Post columnist Catherine Rampell joins Judy Woodruff to discuss.
U.S. financial markets had their worst day since the start of the pandemic, just one day after the Dow Jones industrial average posted its best day since 2020.
The Dow lost 1,063 points, to close at 32997, down 3 percent. The tech-heavy Nasdaq took a bigger hit overall, down 647, a fall of nearly 5 percent. And the S&P 500 fell 153 points to close at 4146, losing 3.5 percent. Overall, the S&P 500 has dropped or than 13 percent since the start of the year.
To help explain what is behind all this, I'm joined by special correspondent Catherine Rampell. She's also a columnist for The Washington Post.
So, hello, Catherine.
Tell us what is going on. Yesterday, there is this big climb, 900 points. Today, it's down over 1,000. What's happening?
It is a lot of whiplash, right, this record growth since 2020, followed by a record decline since 2020.
I think, basically, yesterday, there was a bit of euphoria in the markets. Fed Chair Jay Powell indicated that the Fed might be a little less hawkish than some traders had expected him to be. He basically said, for right now, we are not considering a three-quarters-of-a-percentage-point rate hike anytime soon.
And so there was this buying spree, because a lot of people thought the Fed was going to start tightening even faster than they had indicated before. Today, people woke up, maybe with a bit of a hangover, and looked at the productivity numbers that came out this morning that were not great. And, in fact, productivity went down in the first quarter. And they said, maybe we overreacted yesterday.
And so you saw a big sell-off and some panicking, partly driven also by some earnings misses from some tech companies.
So, it wasn't that there was anything new from the Federal Reserve. It was these other factors and just time to sleep on it?
Something like that, probably.
I think, to some extent, markets are driven by animal spirits. We can't entirely pin down what drives a particular increase or a particular decrease from day to day. There's some herding behavior that happens. But it does look like a lot of traders thought maybe they overreacted to that phrasing from the Fed yesterday.
And they're looking at rates going up for the rest of this year, potentially next year as well. And that always weighs on stocks.
And what about the underlying factors here, the underlying strength or weakness of the economy overall? To what extent does that play in, inflation and so forth?
Over the last few months, I think the economic forecast has darkened somewhat, because we have gotten hit with a series of really unfortunate and bad shocks.
I'm talking about things like the lockdowns in China affecting manufacturing hubs and disrupting supply chains once again. There's obviously the war in Ukraine, whose primary tragic consequence, of course, is the loss of life. But that's also disrupted food markets around the world, energy markets around the world, fertilizer, commodities, things like that, as well as a bunch of other things, like a drought in California and the avian flu.
All of those things are likely to drive inflation higher, which suggests that the Fed will have to act even more aggressively than they might have otherwise to get inflation down. And, historically, when the Fed has had to raise interest rates to deal with inflation, most of the time, they have accidentally tipped us into recession.
If they have to act even more aggressively today, there's a greater risk that we will have a downturn in the next year or so.
So, fasten our seat belts. The ride continues.
Catherine Rampell, thank you very much.
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