Stocks sold off on Monday, pushing the S&P 500 to a new 2022 low and back into bearish territory, as recession fears grew ahead of a key Federal Reserve meeting this week.
The Dow Jones Industrial Average fell 810 points, or about 2.6%, the S&P 500 fell 3.5% and the Nasdaq Composite fell 4.35%.
The decisions came as investors continued to digest a warmer-than-expected inflation report on Friday and braced for the Fed to hike rates later in the week as the 10-year Treasury yield saw its highest. great leap since March 2020.
“Anyone who wants to be optimistic can’t find anything to hang their hat on,” said Jack Ablin, founding partner of Cresset Capital. “There’s nothing there right now with valuations in question, with interest rates rising, the direction of the economy uncertain.”
The S&P 500 hit a new intraday low for the year on Monday and its lowest level since March 2021. The benchmark is nearly 21% off its all-time high, back in bearish territory after trading there briefly. on an intraday basis about three weeks ago.
Data from Bespoke Investment Group shows that since World War II there have been 14 bear markets on a closing basis and on average the S&P 500 has fallen by a median of 30%, with the downturn lasting a median of 359 days.
“The odds of a ‘June Swoon’ straight to 3,400 have increased significantly, in our view,” wrote Jonathan Krinsky, technical analyst for BTIG.
“We thought a return to momentum where winners were bought and losers sold would create index-level chops, but last week reminds us that risk continues to be on the downside,” added Krinsky.
Monday’s selling was widespread, with just 10 components of the S&P 500 trading higher. Declines on the New York Stock Exchange also topped 21-1 leads.
These movements could indicate that many investors are taking profits or repositioning their portfolios, and may signal that the markets are in “a capitulation phase”, said Jeff Kilburg, chief investment officer of Sanctuary Wealth.
The recession is increasingly feared
Shares of Boeing, Salesforce and American Express fell more than 9%, 6% and 4%, respectively, dragging the Dow Jones lower. Beaten tech stocks also took a hit with Netflix, Tesla and Nvidia down more than 6% as the Nasdaq hit a new 52-week low and its lowest level since November 2020.
Travel stocks also fell on Monday as Carnival Corporation and Norwegian Cruise Line fell about 11% and 12%, respectively. Delta Air Lines fell more than 7% while United fell around 10%.
All major S&P 500 sectors plunged into the red, with energy and consumer discretionary falling more than 4%. Information technology, communication materials and services also fell more than 3%.
Amid Monday’s selloff, investors are likely to maintain a “defensive posture” in areas such as consumer staples and health care, Truist’s Keith Lerner said. These stocks may not post big gains, but may outperform relative to other sectors, he said.
Ablin views gold as a continued safe haven even if prices fall that day, as well as companies that pay consistent dividends.
As equities sold off, short-term rates jumped on Monday. The 10-year Treasury rose 20 basis points to 3.35% as investors continued to bet the Fed may need to get more aggressive to crush inflation. The 2-year Treasury yield last rose 23 basis points to 3.28% and earlier traded above its 10-year counterpart for the first time since April, a so-called inverted yield curve seen as an indicator of a recession.
Monday’s moves came after last week’s major averages posted their biggest weekly declines since late January as investors grew increasingly worried that rising inflation could tip the economy into a recession. .
The Bureau of Labor Statistics reported on Friday that the consumer price index in the United States rose 8.6% last month from a year ago, its fastest increase since December 1981. This gain exceeded economists’ expectations.
Gasoline prices also rose above $5 a gallon over the weekend, further stoking fears of rising inflation and falling consumer confidence.
Meanwhile, Bitcoin fell below $24,000 on Monday and hit its lowest level since 2020 as risk-averse investors continued to dump the crypto as rates rose. News sent shared crypto-related companies including Coinbase and Microstrategy down 13% and 29%, respectively.
“The bitcoin cryptocurrency has been an excellent indicator of investors’ risk threshold for equities,” wrote JC O’Hara, chief market technician at MKM Partners. “A lot of longs that bought last year are still trapped, so we could easily see a pullback to 19,500. That would be a bearish reading for stocks.
Investors are looking to Wednesday when the Fed is expected to announce a rate hike of at least half a point. The central bank has already hiked rates twice this year, including a 50 basis point hike in May in an effort to stave off the recent surge in inflation.
Some economists think the Fed could even raise rates by 0.75% this week after Friday’s CPI report.
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Post expires at 4:50am on Friday June 24th, 2022