U.S. stocks tank on Thursday, undoing the prior day’s gains as volatility continued to rock the market;

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The S&P 500 fell 3.2%, while the Dow Jones Industrial Average dropped 2.4%, or about 750 points.

The Nasdaq Composite slumped 4% as shares of big tech companies retreated. If the Dow industrials close below 30000—it was recently a bit below that level—it would be the first time since January 2021.

“I think the markets are reassessing the market environment,” said Michael Sheldon, chief investment officer at investment advisory firm RDM Financial Group. “The outlook for growth and profits and inflation, at least over the next few months, is not all that favorable, unfortunately.”

The Fed’s 0.75-percentage-point rate increase was its largest since 1994 but lined up with investors’ expectations as the central bank races to tame high inflation.

Mr. Powell said that while the central bank is not trying to cause a recession, it was becoming more difficult to achieve a so-called soft landing, in which the economy slows enough to dampen inflation without entering a recession.

Some analysts said investors are coming to terms with increasing risks to economic growth.

“I think this is the realization that we really could be heading for a recession. I am not sure that had really filtered through to the mind of the market until now,” said Altaf Kassam, head of investment strategy for Europe, the Middle East and Africa at State Street Global Advisors.

While Mr. Powell suggested Wednesday that the “unusually large” rate rise wouldn’t become common, he left the door open to another 0.75-percentage-point increase as soon as next month. 

Interest-rate increases of that size could unsettle investors if they feel the Fed is racing too quickly to get ahead of inflation, said Aoifinn Devitt, chief investment officer at Moneta. “That may lead to even more anxiety in the market,” she said. 

Switzerland’s central bank surprised investors by hiking interest rates for the first time in 15 years. The Swiss National Bank raised its policy rate by 0.5 percentage point to negative 0.25%, leaving only the Bank of Japan among the major developed economy central banks not to have raised rates to tame inflation. Economists had expected the SNB to leave rates unchanged.

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