U.S. stocks declined Wednesday, giving up some of the previous session’s sharp gains.
The Dow Jones Industrial Average dropped 265 points, or 0.9%, while the S&P 500 fell 0.8%. The Nasdaq Composite slipped 0.7%.
Those moves come as growing fears of an economic recession continued to weigh on investors. Fed Chairman Jerome Powell told Congress on Wednesday that the central bank had the “resolve” it takes to bring inflation down, further fanning concerns aggressive monetary tightening would tip the U.S. economy into a recession.
“At the Fed, we understand the hardship high inflation is causing,” the Fed chief said to the Senate Banking Committee. “We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so.”
Powell added that the Fed will stay the course until it sees “compelling evidence that inflation is moving down.”
Stocks posted their worst week of the bear market last week as the Fed raised rates by 0.75 percentage points and hinted another increase of that magnitude was possible next month. The change in tone last week by the Fed to a more aggressive inflation-fighting stance has unnerved investors who now believe the central bank would rather risk a recession than endure persistent high inflation.
Some Wall Street banks increased their odds of a downturn this week with Citigroup raising chances of a global recession to 50%, pointing to data that consumers are starting to pull back on spending.
“The experience of history indicates that disinflation often carries meaningful costs for growth, and we see the aggregate probability of recession as now approaching 50%,” read a note from Citigroup.
Goldman Sachs believes a recession is becoming increasingly likely for the U.S. economy, saying that the risks of a recession are “higher and more front-loaded.”
“The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply,” the firm said in a note to clients.
Meanwhile, UBS said Tuesday in a note to clients that it does not expect a U.S. or global recession in 2022 or 2023 in its base case, “but it’s clear that the risks of a hard landing are rising.”
“Even if the economy does slip into a recession, however, it should be a shallow one given the strength of consumer and bank balance sheets,” UBS added.
Energy stocks took a hit as oil prices dropped on concern a slower economy will hurt fuel demand. Brent crude futures dropped nearly 6% to $107.78 per barrel. West Texas Intermediate, the U.S. oil benchmark, declined 6.5% to $102.38 per barrel.
Shares of Marathon Oil and ConocoPhillips dropped more than 5%, while Occidental Petroleum slid 4%. Exxon Mobil dipped 3%.
On Wednesday, the White House released a fact sheet calling for Congress to suspend federal gasoline and diesel taxes for three months. The effort is meant to ease pressures at the pump for consumers during an election year.
On Tuesday, the Dow surged 641 points, or 2.15%. The S&P 500 added 2.45%, turning in its best day since May 4. The jump comes after the benchmark index slumped 5.79% last week in its worst weekly performance since March 2020.
The Nasdaq Composite advanced 2.51% on Tuesday, following its tenth week of losses in the last 11 weeks.
On the earnings front, KB Home will post results after the market closes on Wednesday.