A DEEP AND SUSTAINED SELL-OFF: Looking Like Another Day as Inflation Fears Intensify
Stocks sink, sending the S&P 500 to a bear market once again
(June 13, 20229:32 AM ET David Gura Twitter Instagram Traders work on the floor of the New York Stock Exchange (NYSE) on Friday in New York City. Stocks slumped on Monday after a stronger-than-expected report on inflation, sending the S&P500 to a bear market. )
"It's looking like another grim day in Wall Street as fears about inflation intensify.
The S&P 500 fell once again into bear market territory on Monday after slumping more than 2%at the open, meaning the broad benchmark index has now dropped more than 20% from its most recent high.
The other indexes also slumped, with the Dow Jones Industrial Average down 2%, or over 600 points, while the Nasdaq fell 2.8%.
The falls were triggered by a stronger-than-expected inflation report on Friday, which is raising concerns the Federal Reserve will need to raise interest rates even more aggressively this year.
The Fed kicks off its two-day meeting on Tuesday and it had already been expected to raise interest rates by half a percentage point for a second month in a row.
The latest inflation report now raises the likelihood of more big rate hikes in coming months. Those actions may help curb price gains but markets are fearful the strong response from the central bank will also push the economy into a recession.
"U.S. equity markets are reacting negatively to last week's hotter-than-expected reading for inflation," says Sam Stovall, chief investment strategist at CFRA.
"Investors are now increasingly concerned that the Fed is too far behind the curve to slow the rise in inflation without throwing the economy into recession," Stovall adds, referring to when a central bank is moving late in addressing price gains.
Stocks have had a miserable year because of inflation fears. The Nasdaq, which has a higher concentration of technology shares, has been in a bear market for months.
A bear market is considered an important barometer of investor pessimism and is symbolic of a deep and sustained market selloff.
". . .Rates on government bonds surged on Monday amid the negative investor sentiment:The short-term 2-year Treasury yield jumped to over 3.2%—its highest level since 2007, while also at one point trading above the 10-year Treasury note, a so-called yield curve inversion which typically indicates a looming recession.
The cryptocurrency market saw a huge selloff on Monday, with the price of Bitcoin plunging to its lowest point in nearly two years, falling below $24,000 as investors dumped risky assets amid rising rates.
Crucial Quote:
“The brief window of hope that opened in the back half of May as it looked like U.S. inflation/Fed tightening forecasts were hitting a peak and China was reopening has snapped violently shut,” says Vital Knowledge founder Adam Crisafulli, with investors now “back to wallowing in a hole of despair following the huge CPI on Friday.”
What To Watch For:
“Concerns over inflation and its impact on economic growth have become heightened over the last several days, and unlike prior periods in recent history where growth has come into question, with inflation pressures as strong as they are, there is little optimism that the Fed can help to cushion the blow,” according to Bespoke Investment Group.
Key Background:
All three major averages recently wrapped up their worst down week since January, falling by roughly 5% or more. The majority of last week’s losses came on Friday after hotter-than-expected inflation data spooked markets and raised recession fears, with the Dow plunging nearly 900 points in one day.
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