Markets tumble worldwide, bear market growls on Wall Street
NEW YORK — Fears about a possible recession are pounding markets Monday, and Wall Street’s S&P 500 tumbled into the maw of what’s known as a bear market after sinking more than 20% below its record set early this year.
The S&P 500 dropped 2.7% in the first chance for investors to trade after getting the weekend to reflect on the stunning news that inflation is getting worse, not better. The Dow Jones Industrial Average was down 591 points, or 1.9%, at 30,792 as of 1:58 p.m. Eastern time, and the Nasdaq composite was 3.4% lower.
The center of Wall Street’s focus was again on the Federal Reserve, which is scrambling to get inflation under control. Its main method is to raise interest rates in order to slow the economy, a blunt tool that risks a recession if used too aggressively.
With the Fed seemingly pinned into having to get more aggressive, prices tumbled for everything from bonds to bitcoin, from New York to New Zealand, with the sharpest drops hitting the biggest winners of the earlier low-rate era.
“The best thing people can do is to not panic and don’t sell at the bottom,” said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research, “and we’re probably not at the bottom.”
Some economists are even speculating the Fed on Wednesday may raise its key short-term interest rate by three-quarters of a percentage point. That’s triple the usual amount and something the Fed hasn’t done since 1994. Traders now see a 28% probability of such a mega-hike, up from just 3% a week ago, according to CME Group.
No one thinks the Fed will stop there, with markets bracing for a continued series of bigger-than-usual hikes. Those would come on top of some already discouraging signals about the economy and corporate profits, including a record-low preliminary reading on consumer sentiment that was soured by high gasoline prices.
It’s all a sharp turnaround from earlier in the pandemic, when central banks worldwide slashed rates to record lows and made other moves that propped up prices for stocks and other investments in hopes of juicing the economy.
Such expectations are also sending U.S. bond yields to their highest levels in more than a decade. The two-year Treasury yield shot to 3.23% from 3.06% late Friday after touching its highest level since 2007, according to Tradeweb. It’s more than quadrupled this year.
The 10-year yield jumped to 3.34% from 3.15%, and the higher level will make mortgages and many other kinds of loans for households and for businesses more expensive. It has more than doubled this year and touched its highest level since 2011.