Wall Street washes out as stocks fall, crypto dives ahead

NEW YORK (AP) — Stocks fell sharply Wednesday as turmoil flared in far-flung corners of financial markets, and Wall Street gave back much of the gains it had built in a rally leading up to Election Day.

The S&P 500 lost 2.1%, or 79.54 points, to 3,748.57, erasing most of the gains from what had been a three-day winning streak. The Dow Jones Industrial Average fell 646.89 points, or 2%, to 32,513.94, while the Nasdaq Composite fell 263.02, or 2.5%, to 10,353.17.

Several sources of disappointment lay behind the drops. Concerns grew over possible spillovers to other markets from the crypto industry’s latest crisis of confidence, with prices plunging again, while a flurry of sour profit reports from major companies such as The Walt Disney Co. also hurt the shares. Uncertainty also remains about whether Tuesday’s election will result in a Congress that will prevent the kind of sweeping economic changes that make Wall Street nervous

Overall, a report is scheduled for Thursday, when the US government will show how bad inflation was across the country. That reading is likely to have a big effect on how much longer the Federal Reserve raises interest rates to get inflation under control. Fear of such increases has been the clearly dominant force shaking Wall Street this year.

“This is like a marathon, and we’re in the early part of it,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute.

The Federal Reserve has already raised its key overnight rate to a range of 3.75% to 4%, up from virtually zero in March, and a growing number of investors expect it to top 5% next year.

By making it more expensive for people and companies to borrow money, the Fed is intentionally slowing the economy and the labor market in hopes of curbing inflation near its highest level in four decades. But the Fed threatens to create a recession if it goes too far, and high interest rates meanwhile drag down the prices of stocks and all kinds of investments.

Cryptocurrencies have felt some of the worst pain from the Fed’s whiplash move away from the record low interest rates imposed during the pandemic recession. Bitcoin fell further on Wednesday, below $15,900 from the record of nearly $69,000 set last year. It has fallen more than 14% in the last 24 hours.

This latest plunge for crypto, including a 17% drop for ethereum, comes amid concerns about the financial strength of one of the industry’s largest trading exchanges, FTX. Industry mega-player Binance said late Wednesday it was walking away from a deal to buy its troubled rival, which needed a bailout after users began scrambling to get their money out.

Binance said it took the action after doing its due diligence and looking at FTX’s accounting books, while also citing reports on how FTX handled customer funds.

Earlier in the day, before Binance said there was no deal, the CEO said that “FTX decline is not good for anyone in the industry.”

“Don’t see it as a ‘win for us,'” Changpeng Zhao, who goes by the initials CZ, said in a letter to Binance employees that he posted on Twitter. “User confidence is seriously shaken. Regulators will scrutinize the exchanges even more.” »

Shares of companies embedded in the crypto-economy also continued to decline. Robinhood Markets lost another 13.8% and is down 31.6% so far this week. Coinbase Global fell 9.5% to bring its decline for the week to 21.8%

Elsewhere on Wall Street, Disney sank 13.2% for the biggest loss in the S&P 500 after reporting last-quarter results that fell well short of analysts’ expectations.

Facebook parent Meta Platforms was one of Wednesday’s rare bright spots for investors. It rose 5.2% after saying it will cut costs by laying off 11,000, or about 13% of its workforce, as it grapples with faltering revenue and broader problems in the technology industry. It is still down almost 70% for the year so far.

The yield on the 10-year Treasury note, which helps dictate interest rates for mortgages and other loans, fell to 4.08% from 4.13% late Tuesday. The two-year yield, which tends to track expectations of Fed action more closely, fell to 4.60% from 4.66%.

AP Business Writers Elaine Kurtenbach and Matt Ott contributed to this report.