US stock markets joined a global sell-off on Thursday after news that the Federal Reserve would continue its planned interest rate hikes, a government shutdown loomed and disappointing financial results spooked investors.
The Dow Jones industrial average closed down 2%, or 464 points, after earlier falling as much as 679 points, while the S&P 500 fell 1.6%. The Nasdaq, home to tech giants including Apple and Facebook, also dropped 1.6%.
The fall was the latest in a series of wild swings and indexes are now trading at their lowest levels for 15 months.
The US losses came after UK shares fell to their lowest in more than two years. The FTSE closed down 0.8%, the CAC in Paris closed down 1.8%, the Dax in Frankfurt was down 1.4% and Ibex in Madrid was down 2%. Markets in Australia and Japan also fell sharply yesterday.
Investors appear to have been spooked by the prospect of higher borrowing costs. The Fed announced its fourth interest rate hike of the year on Wednesday and the Fed chair, Jerome Powell, indicated that while the pace of increases may slow, more were to come in 2019.
The last recession was followed by years of ultra-low interest rates and massive bond-buying schemes from the world’s biggest central banks aimed at reviving the economy. Those policies have been credited with driving a rally in global stock markets.
But as the Fed and others unwind those policies markets, while still close to record highs, have become increasingly volatile. Trade tensions between the US, China and other major trading partners have only served to fuel that volatility.
At a press conference on Wednesday, Powell noted recent turbulence in the stock markets but said that when it came to the Fed’s decisions “no one market is the single dominant indicator”.
“All people are talking about today is the aftermath of the Fed hike. The fact that Fed just killed the notion that they are here to backstop the market,” said Michael Antonelli, managing director, institutional sales trading at Robert W Baird in Milwaukee.
“People are just trying to fall back on technicals now that fundamentals seem a little chaotic. We’re still dealing with a stock market crash and it’s going to be with us for a while. This isn’t going to end in a quick fashion.”
The latest fall in US markets comes as Donald Trump is threatening a government shutdown unless Congress agrees to fund his border wall with Mexico. Trump has appeared to back away from a shutdown but is now indicating he will not sign off on a stopgap budget unless there is funding for the wall.
“At this moment, the president does not want to go further without border security, which includes steel slats or a wall,” the White House press secretary, Sarah Sanders, said. Trump “is continuing to weigh his options”, she added.
Disappointing earnings reports added to the US sell-off.
Shares of Walgreens Boots Alliance dropped 3.55% as the drugstore chain’s same-store sales missed estimates.
Conagra Brands tumbled 11.33%, the most on the S&P, after the packaged foods maker missed sales estimates on delayed shipments and weak demand.
Accenture fell 4.3% as its full-year revenue and profit outlook were largely below estimates.