Stocks fell on Thursday following Wall Street’s worst day in nearly two years, amid growing concern about inflation’s impact on economic growth and company profitability.
The S&P 500 ticked down 0.6 percent after falling 4 percent on Wednesday. The index now sits just above the threshold for bear market territory, a Wall Street term for a 20 percent decline from a recent peak. This type of drop serves as a measure of investors’ pessimism about the market. Through Thursday, the S&P 500 had dropped 18.7 percent from its Jan. 3 peak.
Shares in Europe were also sharply lower. The Stoxx Europe 600 sank 1.4 percent, pulled lower by tech and consumer companies. Major indexes in European countries fell by more than 1 percent, with Britain’s FTSE 100 down 1.8 percent. The Nikkei 225 in Japan fell 1.9 percent and the Hang Seng index in Hong Kong dropped 2.5 percent.
The two concerns dominating financial markets right now are about the prospects for more aggressive interest rate increases by the Federal Reserve and how the economy is faring as the cost of everything from food to fuel rises quickly. On Wednesday, U.S. Treasury Secretary Janet L. Yellen said that elevated prices were depressing both spending and economic output, creating what she called “stagflationary effects” all around the world.
“This is an environment that is filled with risks, both with respect to inflation and also potential slowdowns,” Ms. Yellen said.
Sentiment on the market had lifted earlier in the week after a report showed consumer spending in the United States remained healthy, but those gains were erased after major companies, including Walmart and Target, reported that inflation was taking a toll on their profits.
The corporate financial reports are indicators that inflation remains sticky, and they could provide reasons for the Fed to raise interest rates at a larger scale than previously anticipated to combat inflation. Economists are worried the policy move could slow consumer spending, a pillar of the American economy.
“Higher costs will continue to be passed on and consumers will stop dipping into savings and start being more careful with their spending,” Craig Erlam, a market analyst at Oanda, wrote in a note on Thursday. “There’s a feeling of inevitability about the economy — the question is whether we’re going to see a slowdown or a recession.”
The rout in stocks and the concerns about global growth increased demand for government bonds, which are safer investments. The yield on 10-year U.S. Treasury notes dropped 4 basis points, or 0.04 percentage points, to 2.84 percent, back to its level in late April and before the Federal Reserve raised interest rates by half a percentage point.