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Dow drops nearly 500 points and closes to new low for 2022 on rising recession fears

Shares plunged Friday to close out a brutal week for financial markets as rising interest rates and foreign exchange turmoil fueled fears of a global recession.

The Dow Jones Industrial Average fell 486.27 points, or 1.62%, to 29,590.41. The S&P 500 fell 1.72% to 3,693.23, while the Nasdaq Composite fell 1.8% to 10,867.93.

The Dow hit a new low for the year, closing below 30,000 for the first time since June 17. The 30-stock index ended the day 19.9% ​​below an intraday record, flirting with bear market territory. At one point, the Dow was more than 826 points lower.

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Major averages ended their fifth negative week in six, with the Dow down 4%. The S&P and Nasdaq lost 4.65% and 5.07% respectively. It marked the fourth consecutive negative session for equities, as the Fed passed another super-big 75 basis point rate hike on Wednesday and said it would do another at its November meeting.

“The market has clearly and rapidly moved from concerns about inflation to concerns about the Federal Reserve’s aggressive campaign,” said Quincy Krosby of LPL Financial. “You’re seeing bond yields rise to levels we haven’t seen in years — it’s changing the way we think about how the Fed can get to price stability without anything breaking.”

The British pound hit a new low of more than three decades against the US dollar after a new economic plan in the UK, which included a slew of tax cuts, shook up markets that are currently mostly afraid of inflation. Major European markets lost 2% on the day.

“This is a global macro clutter that the market is trying to solve,” Krosby said.

Bond yields skyrocketed this week following the Fed’s actions, with 2-year and 10-year Treasury yields hitting highs not seen in more than a decade.

Goldman Sachs lowered its target for the S&P 500 before the end of the year due to rising interest rates, forecasting a downward trend of at least 4% from here.

Stocks positioned to suffer the most from a recession led the week’s losses, with the S&P 500’s consumer discretionary sector falling 7%. Energy fell 9% as oil prices fell. Growth stocks, including major technology names Apple, Amazon, Microsoft and Meta Platforms, fell Friday.

“Based on our client discussions, a majority of equity investors believe that a hard landing scenario is inevitable and their focus is on the timing, magnitude and duration of a potential recession and investment strategies for that outlook,” Goldman Sachs wrote. David Kostin in a note to clients as he cut his prospects.