The S&P 500 slipped into bear market territory on Monday as rampant inflation and the increasing likelihood of a recession spooked wary investors.
The broad-based index sank about 125 points, or more than 3%, and is now down more than 21% so far this year. A bear market is defined as a decline of 20% or more from a recent high.
The Dow Jones Industrial Average also sold off sharply, plunging more than 700 points as of 10:45 a.m. ET, or more than 2.25%. The tech-heavy Nasdaq index was down 450 points, or about 4%.
The latest drop occurred ahead of a Federal Reserve meeting this week that is expected to result in another increase of at least a half-percentage point in benchmark interest rates – adding to the financial crunch by making credit more expensive in a bid to cool prices.
The Fed is under intense pressure to respond following a brutal May Consumer Price Index report showing inflation climbed by 8.6%, or its fastest rate since December 1981. The uptick was driven in large part by surging gas prices, with the national average price per gallon topping $5 as of this past weekend.
“With the Fed out of policy tools to stimulate economic activity and runaway inflation, all signs currently point to an extended period of stagflation – high unemployment coupled with high inflation – which we haven’t seen in earnest since the 1970s,” said Liam Hunt, Writer and Analyst at GoldIRAGuide.com.
The recent downturn has led to increased doubt among economists and investors alike that the Fed will be able to engineer a “soft landing” for the economy.
As The Post reported last week, economists are increasingly fearful that an economic recession is now inevitable. Former Treasury Secretary Larry Summers said an economic recession within the next two years is now “more likely than not.”
“[Fed] Chairman Jerome Powell and his colleagues are walking a monetary policy tightrope hoping to avoid a recession while dampening demand,” Bankrate senior economic analyst Mark Hamrick said. “This year’s decline in stock prices and rise in bond yields are among the more obvious consequences of the Fed’s actions.”
The two-year and 10-year U.S. Treasury yield curve inverted for a time on Monday for the first time since April – a move traditionally taken as sign of a looming recession.
US benchmark oil prices were hovering near $120 per barrel on Monday as the Russia-Ukraine crisis continues to upend the global energy market. Brent Crude, the global benchmark, was also near $120.
The cryptocurrency market continued its trend of following downturns in traditional assets. Bitcoin fell below the $24,000 threshold for the first time since 2020 as Binance, the world’s biggest cryptocurrency exchange, temporarily paused withdrawals due to volatility.
The CBOE Volatility Index, known as Wall Street’s “fear gauge,” jumped more than 20% to 33.33.
Stocks have been under pressure for months as investors dump asserts in response to the Fed’s move to tighten monetary policy.
Aside from the interest rate hikes, the central bank has begun the process of trimming its nearly $9 trillion in bond holdings as it moves away from the lax financial policy embraced to stimulate activity during the COVID-19 pandemic.