Dow drops 200 points as market sell-off returns on new Powell inflation-fighting

Stocks fell Thursday as Wall Street braced for more large rate hikes going forward following the ECB’s increase.

The Dow Jones Industrial Average shed 227 points, or 0.72%. The S&P 500 fell 0.77%, and the Nasdaq Composite declined 0.92%.

Futures slipped after the European Central Bank hiked interest rates by 0.75 percentage point, raising its deposit to 0.75% from 0%, in a largely expected move to tamp down inflation. Stock futures continued to fall during a Q&A session from Federal Reserve Chair Jerome Powell at the Cato Institute where he reiterated that the central bank will do what it takes to fight inflation.

The stock market is coming off a solid rebound during Wednesday’s regular trading hours. The Dow gained about 436 points, or 1.4%. The S&P 500 added 1.8%, and the Nasdaq Composite popped 2.1%.

It was the best day since Aug. 10 for all three averages, and the Nasdaq snapped a seven-day losing streak.

Even with Wednesday’s rally, stocks remain in a downtrend overall. Concerns about a slowing economy and further rate hikes from the Federal Reserve are pushing some investors away from riskier parts of the market.

“Recession risk is rising and we have been moving more defensive in our portfolios as a result. However, high inflation means that traditional ‘risk off’ strategies such as cash and government bonds can create a drag on total return,” Lauren Goodwin, economist and portfolio strategist at New York Life Investments, said in a note to clients.

“We are fully invested in our portfolios, using selective bets within that overall neutral-risk position to build resilience against volatility and inflation. In our equity sleeve, this includes a strong overweight to value equity and dividend payers,” Goodwin added.

On Thursday morning, investors will get the latest look at the U.S. economy with jobless claims data. Economists surveyed by Dow Jones expect 235,000 initial unemployment claims, up slightly from 232,000 in the previous week.