[Domino Tightening] Growing Recession Fears... Dow Falls Below 30,000, KOSPI Also Drops Below 2400

On the 16th (local time), a trader is working on the floor of the New York Stock Exchange (NYSE) in the United States. Although an 'relief rally' continued following the Federal Reserve's (Fed) 'giant step' (0.75 percentage point interest rate hike) the previous day, the New York stock market plunged sharply after just one day.
[Image source=Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina, Reporter Lee Seonae] The fear of an economic recession due to rapid interest rate hikes has resurfaced. This follows the United States' giant step (0.75 percentage point increase) for the first time in 28 years amid concerns over prolonged inflation, with the UK and Switzerland accelerating their tightening steps. As investment sentiment froze solid, the Dow Jones Industrial Average in the New York stock market fell below the 30,000 mark, and the KOSPI broke below 2,400 during the session.

On the 16th (local time) at the New York Stock Exchange (NYSE), the Dow closed at 29,927.07, down 741.46 points (2.42%) from the previous session. This is the first time in 1 year and 5 months since January last year that the Dow has fallen below the 30,000 mark at closing. The S&P 500 and Nasdaq indices also closed down 3.25% and 4.08%, respectively.

On the 17th in the Korean market, the KOSPI fell more than 2% after opening, dropping below 2,400 for the first time in 1 year and 7 months. The KOSDAQ also fell below 800, settling in the 780s. The leading stock Samsung Electronics also dropped to the 50,000 won range during the session for the first time in 1 year and 7 months. Large-cap growth stocks representing companies like Naver and Kakao also recorded new 52-week lows.

The market, which had pressed the buy button the day before due to the Federal Reserve's strong commitment to price stability, was engulfed by fear in just one day. In particular, following the Fed, the Bank of England (BOE) raised interest rates for the fifth consecutive time, and the Swiss National Bank (SNB) raised rates for the first time in 15 years, intensifying concerns over high-intensity tightening. The sharp interest rate hikes by central banks worldwide are weighing heavily on the global financial markets with forecasts that they will push the global economy into recession. Gabriela Santos, JP Morgan Global Market Strategist, said, "Central banks around the world are more hawkish than expected," adding, "This increases the probability of a recession by the end of this year or early next year."

Warnings that a recession is imminent are also confirmed. The Federal Reserve Bank of Atlanta lowered its forecast for U.S. growth in the second quarter to 0%. This is a significant downgrade from 1.3% just two weeks ago on the 1st. Key economic indicators released on the same day were also weak. U.S. housing starts in May fell 14.4% from the previous month, marking the lowest level in 13 months. The Philadelphia Fed manufacturing activity index for June turned negative at -3.3, indicating contraction.

Sebastian McMahon, Chief Economist at Industrial Alliance Investment Management, said, "It is highly likely that the U.S. is already in a recession," calling this their base scenario. In a YouGov poll released on the same day, 56% of Americans responded that the economy has already entered a recession. Loomis Sayles forecast a 75% chance of a global recession.

Seo Sang-young, Head of Media Content at Mirae Asset Securities, analyzed, "While the possibility of an immediate global recession is limited, the demand slowdown caused by interest rate hikes by the Fed and other central banks has indeed increased the likelihood of a recession," adding, "This is a burden on the Korean stock market, which is highly dependent on exports."

This content was produced with the assistance of AI translation services.