Stock market today: Dow sinks 700 points as recession fears mount

© Reuters.

By Liz Moyer

Investing.com -- U.S. stocks slumped on Thursday but closed off their lows for the day as investors reacted to the Federal Reserve's higher for longer stance on interest rates.

At 16:02 ET (21:02 GMT), the Dow Jones Industrial Average was down 764 points or 2.3%, while the S&P 500 was down 2.4% and the NASDAQ Composite was down 3.2%. The Dow had been down more than 900 points intraday.

The Fed put out a fresh set of forecasts on Wednesday that show inflation remaining elevated, while expectations were for growth in gross domestic product to slow while unemployment rises.

The Fed said on Wednesday that its benchmark rate would likely top out above 5%, which is higher than expected just a few months ago, and indicated it wasn’t inclined to pause or pivot to rate cuts anytime soon. That is pressuring stocks as investors had hoped for the tide to turn sometime in 2023. It also stokes fears that the Fed's aggressive stance will push the economy into a recession next year.

The central bank raised rates by a half-percentage point, as expected, slower than the pace of hikes at its four earlier meetings this year. Chair Jerome Powell said there are some signs of inflation cooling but not enough to convince the policymakers that inflation was on its way to a sustained direction toward the target 2%.

Traders are expecting another two rate hikes next year, each of at least a quarter of a percentage point.

The gloomy outlook cast a dark shadow on growth stocks, particularly tech stocks. Apple Inc (NASDAQ:AAPL) shares fell 4.7%, while Amazon.com Inc (NASDAQ:AMZN) fell 3.4%, and Microsoft Corporation (NASDAQ:MSFT) was down more than 3%.

Data on Thursday indicated a steeper-than-expected drop in retail sales. Meanwhile, new unemployment claims dropped last week and were lower than expected. Both the European Central Bank and the Bank of England raised rates by a half-percentage point.

Roblox Corp (NYSE:RBLX) shares fell 15% after it reported November metrics that showed slowing growth. Novavax Inc (NASDAQ:NVAX) stock fell more than 34% after it announced a $125 million common share offering and $125 million convertible debt offer.