Global stocks fell and the S&P 500 closed in bearish territory on Monday as inflation fears rattle investors around the world.
Them&P 500 closed down 151 points, or 3.88%, meaning it is down 21.3% since its peak on Jan. 3. The Dow fell 876 points (2.79%) and the Nasdaq fell 530 points (4.68%).
On Friday, investors were disappointed to learn that inflation was moving in the wrong direction. U.S. consumer prices jumped 8.6% year-on-year in May to a new 40-year high, led by rising energy prices, food and housing. For the first time in history, a gallon of regular gasoline now costs $5 on average nationwide, according to AAA, and experts predict gasoline prices could average $6 a gallon. here august.
“Any talk that we are at peak inflation should be put on hold at least until prices stop rising,” said David Nelson, chief strategist at Belpointe Asset Management.
The worse-than-expected inflation report has investors betting on more aggressive interest rate hikes from the Federal Reserve, perhaps as early as the central bank’s policymaking meeting this week.
According to the CME FedWatch Tool, there is now about a 25% chance that the Fed will raise short-term interest rates by three-quarters of a point at the end of Wednesday’s policy meeting as the Fed intensifies its fight against a high inflation.
The likelihood of a half-point rate hike at the Fed’s September meeting has now risen to 50%, from 25% before Friday’s inflation report.
“The debate continues over whether the Fed can slow inflation using its many monetary policy tools without pushing the economy into a recession,” said Art Hogan, chief market strategist at National Securities, at ABC News. “Hiking rates by three-quarters or even a percentage point on Wednesday would send a strong message that this Fed is ready to do what needs to be done to move inflation in the right direction.”
Inflation fears sparked a sell-off on Wall Street that spread beyond stocks into the bond market and cryptocurrencies. Bitcoin, the largest cryptocurrency, traded below $24,000, down almost 14% in just 24 hours.
Despite the rapid sell-off in stock markets this year, strategists at Morgan Stanley and Goldman Sachs said the market did not fully reflect the risks facing the economy.
“The equity risk premium does not reflect the risks to growth, which are rising due to pressure on margins and weaker demand as the consumer decides to pull back,” the strategists wrote on Monday. Morgan Stanley, led by Michael Wilson.
If the&P 500 closes Monday’s trading session down more than 1.3%, the index would be in a bear market, defined as a 20% decline from a recent high. The tech-heavy Nasdaq-100 entered a bear market in March.
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Post expires at 2:00pm on Saturday June 25th, 2022