U.S. stocks tumbled to new 2022 lows on Monday as financial markets continued to reel from a surprise acceleration in inflation just days ahead of a Federal Reserve interest-rate decision.
The Dow Jones Industrial Average
was down 755 points, or 2.4%, at 30,637, after dropping nearly 900 points at its session low.
The S&P 500
fell 127 points, or 3.3%, to 3,774.
The Nasdaq Composite
dropped 446 points, or 3.9%, to 10,894.
A close below 3,837.25, which marks a 20% pullback from the S&P 500’s Jan. 3 record close, would confirm a bear market for the large-cap benchmark.
See: S&P 500 trades in bear-market territory: What investors need to know
What’s driving market
A global selloff in equities and other assets “all boils down to inflation. Very hot inflation,” said Fawad Razaqzada, market analyst at City Index and Forex.com, in emailed comments.
“This is causing panic among global central banks, as they rush to tightening their policies in order to help bring price levels down. Investors, in turn, are seeing their portfolios suffer sizable losses, causing them to reduce their risk, which is further fueling the selloff,” he said.
Friday’s news showing the consumer price index shooting to a fresh 40-year high of 8.6% year-over-year has caused investors to reassess how high the Fed will go in raising interest rates.
In addition to speculation that the Fed may lift interest rates as much as 75 basis points on Wednesday, the yield on the 2-year Treasury
has climbed to 3.20% — up from 2.80% on Thursday, after almost topping the yield on the 10-year note
thereby nearly re-inverting that measure of the yield curve — a potential recession warning flag.
The dollar also jumped, with the ICE U.S. Dollar Index
which measures the currency against a basket of six major rivals jumping 0.8% to trade near a 20-year high.
“Sentiment has changed dramatically as market participants have realized that we have a galloping food crisis due to Russia’s tactics in Ukraine, China could very well move in and out of lockdowns for months causing global supply shocks, and a recession is now very likely as the only option to kill demand and inflation,” said Peter Garnry, head of equity strategy at Saxo Bank.
The S&P 500 energy sector was leading losses, down over 6% as recession worries weighed on oil futures, with the U.S. benchmark
down 2%. Energy has been the clearcut top performing sector of 2022 and remains up nearly 50% for the year to date.
Concerns about monetary policy tightening aren’t limited to the U.S. Last week, the European Central Bank suggested it could follow up a quarter-point rate hike in July with a 50-basis point move in September, as the Bank of England also readies another rate hike this week.
The fallout has been stark in cryptocurrencies, with bitcoin
extending its weekend plunge to trade below $25,000. The crypto lending platform Celsius Network has suspended withdrawals and transfers.
Read: Bitcoin tumbles through $24,000 in crypto crash. This chart shows how much worse a selloff could get.
“The unprecedented move by Celsius is effectively blocking clients from accessing their assets which will do little to quell fears from critics that some DeFi platforms could be Ponzi schemes,” said Nigel Green, chief executive of financial advisor deVere Group.
Companies in focus
Shares of Coinbase Global Inc.
dropped 14%, feeling a downdraft amid the broad weakness in cryptocurrencies.
were down 2.5% near $1,829 an ounce.
The Stoxx Europe 600
dropped 2.4%, while London’s FTSE 100
The Shanghai Composite
ended 0.9% lower, while the Hang Seng Index
tumbled 3.4% in Hong Kong and Japan’s Nikkei 225