U.S. stocks and bonds fell sharply on Thursday, reversing gains from the previous session, as relief from the Federal Reserve’s latest rate decision faded.

The S&P 500, which fell 3%, closed Wednesday up 3% for its best one-day performance since May 2020. More than 90% of stocks in the index fell on Thursday.

The tech-heavy Nasdaq Composite fell more than 4%, one of the biggest losses in the past two years.

The U.S. central bank on Wednesday announced its first 0.5 percentage point rate hike in more than 20 years, a widely spread move, while Federal Reserve Chairman Jay Powell also appeared to rule out a 0.75 percentage point hike at the upcoming meeting.

“It’s not really a dovish signal, but sentiment has taken a hit, it’s the most bearish in decades, so it’s not surprising to see a rebound from such bearish levels,” said Trevor Greetham, head of bulls. . London Royal Assets, referring to Wednesday’s move.

“But you still have a nasty background, and the central bank is not your friend,” he added. “What really needs to change to continue improving market conditions is inflation,” which hit a 40-year high of 8.5 percent in March.

Despite the Fed chair’s comments, traders on Thursday increased bets that the central bank will raise interest rates more aggressively, including possibly a sharp 0.75 percentage point hike in June.

The S&P has lost more than a tenth of its value so far this year as rising borrowing costs and the prospect of persistently high inflation threaten corporate profits. The technology-focused Nasdaq Composite fell more than 20%.

The yield on the 10-year U.S. Treasury note, which investors use as a measure of many other financial assets, rose 0.12 percent to 3.06 percent. Treasury yields, which are inversely related to price, have been volatile in recent weeks as the uncertain path of inflation and interest rates complicates the investment case for fixed-income payment securities.

Powell said Wednesday that a neutral monetary policy stance that neither accelerates nor slows the economy “is not something we can pinpoint with precision.”

Rose Ouahba, head of fixed income at Carmignac, said the Fed chairman “sounds very determined to raise rates until he sees progress in inflation.” “and [he] No sense is given of where the Fed needs to stop. ”

The U.S. dollar index, which measures the greenback against six other currencies, rose 1 percent to near a 20-year high.

In Britain, the pound fell as much as 2.1% against the dollar to just under $1.24, its lowest level since mid-2020, after the Bank of England said the country’s economy could enter a recession this year.

The Bank of England raised its main borrowing rate by 25 basis points to 1% on Thursday, the fourth consecutive hike, but also forecast inflation to exceed 10%.

“It’s really the sum of all our worries about the UK economy,” said Roger Lee, head of UK equity strategy at Investec. “Growth forecasts have been downgraded, inflation expectations have been raised, and interest rates are still rising.”

British gilts rose as traders speculated that the Bank of England would keep borrowing costs relatively low to protect the economy. Two-year gilt yields, which track monetary policy expectations, fell 0.12 percentage point to 1.54%. The 10-year gilt yield fell 0.02 percentage point to 1.95%.

In Europe, the regional Stoxx 600 fell 0.8%.