U.S. stocks plunged to the lowest since November 2020 as another group of Federal Reserve officials struck a hawkish tone, and turmoil in Europe continued to fray investor nerves.

The S&P 500 fell as much as 2.9 per cent during Thursday’s session but trimmed losses as markets closed. Its decline wipes out an ill-timed attempt Wednesday to rebound from a six-day slide. 

The tech-heavy Nasdaq 100 dropped nearly 4 per cent during the session after St. Louis Fed President James Bullard said investors have now understood that they can’t escape additional rate hikes in coming months. The index was dragged down by Apple Inc., which fell as much as 6.1 per cent after a rare analyst downgrade from Bank of America warning of weaker consumer demand for its popular devices.

Signs of stress emerged in the interest-rate swaps market and a leveraged-buyout deal was shelved. U.S. Treasuries pared earlier losses, with the 10-year yield hovering around 3.76 per cent.

In Europe, U.K. gilt yields rose after Prime Minister Liz Truss’s defense of unfunded tax cuts that sent markets into turmoil failed to persuade investors. German inflation topped 10 per cent and the country agreed to energy caps that could add to inflationary pressures.

Investors are grappling with threats posed by discordant moves from central banks over the past few days, with Fed officials adamant on further monetary tightening, the Bank of England unveiling a plan to support government debt and authorities in Asia trying to prop up weakening currencies.

“I was actually really surprised by the impact that the Bank of England had on the global market,” said Fiona Cincotta, senior financial markets analyst at City Index. “Yet, it was short-lived, the relief rally. We sort of pushed past that quite quickly and it seems to be back to that narrative of inflation fears, higher-interest-rate fears.”

Fed officials haven’t shied away from warning that more rate-hike pain is yet to come, with Cleveland Fed President Loretta Mester echoing the rhetoric that her colleagues reinforced this week. Better-than-expected 2Q core PCE and personal consumption numbers on Thursday also paved the path for the Fed to stay aggressive. Weekly jobless claims fell to the lowest since April, showing a persistently tight labor market.

Recession concerns persisted as a gap in the government’s two primary measures of U.S. economic activity during the first half of 2022 narrowed. The National Bureau of Economic Research’s Business Cycle Dating Committee uses this metric and other variables to make any recession call.

The Cboe Volatility Index, or VIX, which is Wall Street’s widely followed gauge of fear, has been showing signs of stress this week. It hadn’t pierced 30 since June, but has been there every day this week. Volatility has also crept into the U.S. swap market in recent days.

“The market is now coming to terms with the idea that a recession is almost a given at this point and it’s really making adjustments for that,” said Shawn Snyder, head of investment strategy at Citi U.S. Wealth Management. 

Separately, the European Commission announced an eighth package of sanctions that would include a price cap on Russia’s oil exports as Russia vowed to go ahead with the annexation of the parts of Ukraine that its troops currently control after UN-condemned votes, putting the Kremlin on a fresh collision course with the U.S. and its allies.

Key events this week:

• Fed’s Mary Daly speak at an event, Thursday
• China PMI, Friday
• Euro zone CPI, unemployment, Friday
• U.S. consumer income , University of Michigan consumer sentiment, Friday
• Fed’s Lael Brainard and John Williams speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 2.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 2.9 per cent
• The Dow Jones Industrial Average fell 1.5 per cent
• The MSCI World index rose 1.1 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 per cent
• The euro rose 0.7 per cent to US$0.9801
• The British pound rose 1.7 per cent to US$1.1077
• The Japanese yen fell 0.2 per cent to 144.44 per dollar

Cryptocurrencies

• Bitcoin fell 0.8 per cent to US$19,409.32
• Ether fell 1.2 per cent to US$1,334.31

Bonds

• The yield on 10-year Treasuries advanced three basis points to 3.76 per cent
• Germany’s 10-year yield advanced six basis points to 2.18 per cent
• Britain’s 10-year yield advanced 13 basis points to 4.14 per cent

Commodities

• West Texas Intermediate crude fell 0.7 per cent to US$81.59 a barrel
• Gold futures were little changed