U.S. stocks closed sharply lower on Monday, with the S&P 500 entering a bear market and Dow industrials tumbling almost 900 points, 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 DJIA, -2.79% finished down 876.05 points, or 2.8%, at 30,516.74, after dropping as much as 1,019.07 points at its session low.
- The S&P 500 SPX, -3.88% ended 151.23 points lower, or 3.9%, at 3,749.63. The S&P 500’s close below 3,837.25 marks a more than 20% pullback from the index’s Jan. 3 record close, confirming a bear market for the large-cap benchmark.
- The Nasdaq Composite COMP, -4.68% dropped 530.80 points, or 4.7%, to 10,809.23.
Stocks sold off sharply Monday on climbing volatility, as hot inflation data rattled markets ahead of the Federal Reserve’s mid-week policy decision. Friday’s data that showed 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. “The inflation data on Friday was clearly a game-changer and the market is reacting accordingly,” said Daniel Tenengauzer, head of markets strategy and insights for BNY Mellon. “Bond yields are higher and, as a result, equities are down because the Fed will need to react.” Economists at Barclays and Jefferies, Tenengauzer said in a phone interview that he expects policy makers to lift the fed funds rate by 75 basis points on Wednesday. “Inflation has clearly come unanchored and officials need to build a new narrative,” given their median forecasts in March for the long-term fed funds rate to be at 2.4% and the 2022 year-end level to be at 1.9%, he said. The Fed’s main policy rate target currently sits between 0.75% and 1%. “There’s definitely sentiment in the market that the Fed’s credibility is also being de-anchored as we speak,” Tenengauzer said via phone. The dollar also jumped, with the ICE U.S. dollar index DXY, 1.05%, which measures the currency against a basket of six major rivals, jumping 1% to trade near an almost 20-year high. 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 expected rate hike this week. NN: THe market still has more work to the downside. This trade could be one of the good ones or a unmitigated disaster. Timing is everything. We need to trade to the downside and get pretty close to a bottom. Then take profits on our shorts and ride the upside to liquidate our longs……..