ARI SHAPIRO, HOST:
This was another brutal week on Wall Street, and the Dow Jones Industrial Average is now flirting with a bear market. It fell by about 480 points today. And the S&P 500 closed 1.7% lower. NPR's David Gura is here to explain what's behind the sell-off. Hey, David.
DAVID GURA, BYLINE: Hey, Ari.
SHAPIRO: Hold our hand. Tell us slowly what's going on. Make us feel better.
GURA: There you go. I'll try. This has been a really bad year for stocks, the Nasdaq down more than 30% since the start of it. And this week, there have been declines day after day after day. Now, on Wednesday, the Federal Reserve raised interest rates again, and it was another big hike, an additional three-quarters of a percentage point. That in and of itself was not a surprise to Wall Street. But what did catch investors off guard were new forecasts from the Fed. And what Fed officials expect is there will be several more aggressive hikes before the end of the year, and that is going to hurt. Specifically, the Fed said it dialed down its expectations for economic growth, and people are going to lose their jobs. But the Fed is not the only culprit here, Ari. I want to be clear about that. Here's Savita Subramanian, the head of U.S. equity strategy at Bank of America.
SAVITA SUBRAMANIAN: It's an environment where everything is going wrong at the same time.
GURA: Inflation is still high around the world. Many companies are warning they're not doing as well as they'd expected. Unusually murky - that is how Goldman Sachs describes the outlook for stocks in the economy in a new note to investors.
SUBRAMANIAN: And the economy is larger than just the stock market. So where else are we seeing a hit?
GURA: We are seeing sell-offs in gold and in oil and in crypto and bonds, yields on U.S. Treasurys. The interest on government bonds that mature in two years and 10 years are at the highest levels in more than a decade. Basically, when borrowing gets more expensive, the value of bonds that are traded goes down. Those prices fall. Kathy Jones is the chief fixed income strategist at the Charles Schwab Center for Financial Research.
KATHY JONES: The bond market is telling me that it expects a slowdown, if not a recession, probably next year.
SHAPIRO: We keep hearing these warnings about a potential recession. Are there other alarm bells ringing that Wall Street's paying attention to?
GURA: Yeah, a couple. A handful of big multinationals are seen as bellwethers, canaries in the coal mine, and FedEx is one of them. You can get a sense of demand based on how many packages the company is moving from place to place. Well, we just learned FedEx is struggling in this economy. So it's going to park some of its planes. It's going to close some of its stores. FedEx is holding off on hiring, raising prices. And its CEO says he anticipates there will be a global recession. Savita Subramanian at Bank of America says you can learn a lot from watching these bellwethers.
SUBRAMANIAN: It's just another kind of kernel of popcorn that's popping amidst a lot of other negative signals that we're seeing at the same time.
GURA: Something else to watch is the strength of the U.S. dollar. The dollar is seen as safe. And right now, it's the strongest it's been in several decades. That may sound like a good thing, Ari, but it is not for big U.S. companies that export products or convert money they make overseas into dollars. Strong dollar has been a big headwind for multinational companies, and it's likely to be even bigger.
SHAPIRO: That's a lot of bad news, David.
SHAPIRO: What else are you looking for in the last few months of this calendar year?
GURA: Well, the economic data continued to be so important. Last week, a government report showed inflation was higher than expected in August from a year earlier. And the markets tanked on that news. So everyone, investors, the Fed - everyone's looking for signs of progress. But this sell-off reflects a new level of pessimism among investors. Many think the Fed will trigger a recession as it raises rates aggressively to get inflation under control. So we're at the stage, Ari, where Wall Street is starting to think more seriously about what a recession would look like. And what makes that complicated is that uncertainty that I mentioned, how weird the economy is right now. The jobs market is still strong. Many people are still spending. A lot of them are not overextended. And most corporate balance sheets seem to be in pretty decent shape.
SHAPIRO: NPR's David Gura, thanks for the look ahead.
GURA: Thanks, Ari.
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