The worst may still be yet to come for stocks – even after leading exchanges suffered their worst day of the year as anxiety mounts that the Federal Reserve’s plan to combat inflation will result in a recession.

The Dow Jones Industrial Average plunged more than 1,000 points and the tech-heavy Nasdaq fell more than 5% in a dismal Thursday session – a sign that investors are skeptical of the Fed’s ability to engineer a “soft landing” for the economy.

“Base case remains equity lows, yield highs yet to be reached,” Bank of America analysts led by Michael Hartnett said in a note to investors obtained by Bloomberg.

The Nasdaq index is down more than 22% so far this year as investors shed their exposure to riskier growth stocks that powered the markets’ blockbuster performance during the COVID-19 pandemic. The Nasdaq lost more than 5% of its value on Thursday, marking its worst day in nearly two years.

Meanwhile, the broad-based S&P 500 has lost nearly 14% of its value this year and is off to its worst start since 1939, according to Bloomberg.

The bond market, which is considered a refuge for investors during periods of volatility, is also under pressure. Benchmark 10-year Treasury notes jumped to 3.06% from 2.914% on Thursday.

The market’s downturn erased a “relief rally” that occurred earlier this week after Fed Chair Jerome Powell said the bank wasn’t considering a 0.75% interest rate hike – and marked a 2,000-point, two-day swing for the Dow.

Still, the current mood on the market is “paralysis rather than panic,” as investors assess how the Fed’s long-term road map for rate hikes will impact their holdings, according to the Bank of America analysts.

“‘Recession shock’ was priced-in too quickly; this is a problem as stronger-than-expected economic data in the first half is causing the market to price-in longer/bigger inflation/rates shock,” the analysts said.

So far, the risk of an economic slowdown hasn’t impacted a historically strong US labor market.

The economy added 428,000 jobs in April – much more than expected – as employers compete to fill their open rolls. Unemployment hovered at 3.6%, close to what the Fed considers to be maximum employment.

Today’s report is balanced and may prove to dampen the extreme volatility of recent days,” said John Lynch, chief investment officer for Comerica Wealth Management. “We’re still not out of the woods, yet a clearing is visible.”

But time will tell if the Fed is successful in its effort to curb inflation, which hit 8.5% in March – the highest rate since 1981.