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Ongoing worries about inflation and an aggressive Federal Reserve sparked a massive stock selling spree on Monday, adding to the slide that marked the end of last week.
The Dow lost almost 900 points during the session. Meanwhile, the Nasdaq broke below 3,800 and recorded its lowest close since early 2021, with the index finishing the day in bear-market territory, down more than 20% from the high-water mark it set early this year.
The Nasdaq (COMP.IND) is -4.7%, the S&P (SP500) is -3.9% and the Dow (DJI) is -2.8%.
The Dow Jones plunged 876.05 points to close at 30,516.74. The S&P 500 retreated 151.23 points to end at 3,749.63. The Nasdaq concluded trading at 10,809.23, plummeting 530.80 points.
According to BTIG, the S&P 500 needed to hold 3,800 to avoid a swift drop to 3,400.
All 11 S&P sectors lost ground. Energy was the weakest, falling more than 5%. Communication Services, Consumer Discretionary, Info Tech, Real Estate and Utilities all dropped more than 4%.
With inflation and higher interest rates in focus, U.S. Treasury yields advanced during the day. The 10-year yield rose 21 basis points to 3.37% and the 2-year yield climbed 29 basis points to 3.33%.
With Monday’s action, the yields on the 2-year and 10-year hovered just short of inversion after briefly inverting overnight. Meanwhile, the 10-year reached its highest level since April of 2011, while the 2-year topped highs it has not experienced since December of 2007.
The market movement took place ahead of a Fed meeting on Wednesday. Following Friday’s release of hotter-than-expected inflation data, concerns mounted that the central bank would step up its interest rate hikes.
As a result, odds have increased of 75-basis point rate hike from the FOMC on Wednesday.
“We expect a 50bps hike at the 15 June FOMC, but do not preclude a hike of 75bps or even 100bps,” Standard Chartered’s Steve Englander said. “We now see a 50bps hike in July (prior 25bps), 50bps in September (flat) and shift our December 25bps hike to November.”
Englander added: “There are signs of an impending major slowdown in activity, but not enough so far to deter the FOMC. A message of 50bps hikes for the next ‘couple’ or ‘few’ meetings would be dovish given market pricing. A hawkish signal would be a 75bps hike or a strong ‘do what it takes’ warning.”
Deutsche Bank came out as the first major bank to call for a terminal rate of more than 4% in 2023.
Shifting to another part of the financial market, cryptocurrency’s market capitalization has dropped below $1T on Monday, for the first time since January 2021. Bitcoin fell 14% to move below $24K.
“I’ve become more pessimistic about the opportunity of stabilizing inflation at an acceptable level without a recession,” said JPMorgan Chase chief economist Bruce Kasman.
Moreover, an increasing number of economists are now doubting the possibility of a “soft landing,” which would see the Fed get inflation under control without triggering an economic downturn.
