by Stan Cho | The Associated Press
Wall Street began what it called a bear market Monday after fears of a weakening economy and rising interest rates sent the S&P 500 down more than 20% from its record set earlier this year.
The index sank 3.9% in the first opportunity for investors to trade after getting the weekend to reflect on the shocking news that inflation is getting worse, not better. The Dow Jones Industrial Average was down more than 1,000 points before ending with a loss of 876.
At the center of the sell-off was again the Federal Reserve, which is scrambling to bring inflation under control. Its main method is to raise interest rates to slow the economy, a blunt tool that raises the risk of recession if used too aggressively.
With the Fed pinned to be more aggressive, prices for everything from bonds to bitcoin, from New York to New Zealand, fell around the world. Some of the sharpest drops hit those that were the big winners of the easy low-rate era, like high-growth technology stocks and other former darlings of investors. Tesla dropped 7.1% and Amazon 5.5%. Gamestop dropped 8.4%.
Eight of the Bay Area’s largest public companies suffered losses in their share prices, the equivalent of a bear market slump by the end of trading on Monday, while the other two were markedly below their previously peak high prices. Were. These include seven tech companies, two financial services firms and one energy company.
Menlo Park-based Meta Platforms, owner of the Facebook app, suffered the steepest drop in market value among the 10 largest publicly traded companies in the Bay Area. The meta is down 57% from its one-year high in September 2021. Mountain View-based Google owner Alphabet was down 29% from its November 2021 high. And Cupertino-based Apple has posted a 26.7% drop from its December 2021 peak.
“The best thing people can do is not panic and not sell from 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 predicting that the Fed could raise its key rate by three-quarters of a percent on Wednesday. This is three times the normal amount and the Fed has not done so since 1994. According to CME Group, traders now have a 28% chance of such a mega-hike, up from just 3% a week ago.
No one thinks the Fed will stop there, with the market gearing up for a continuing series of higher-than-usual hikes. They will come on top of some discouraging signs about the economy and corporate profits, including a record-low preliminary reading on consumer sentiment due to higher gasoline prices.
The economy as a whole is still on hold, but the danger is that the job market and other factors are so hot that they will add to higher inflation. That’s why the Fed is in the midst of a whiplash pivot away from record-low interest rates, previously engineered in the pandemic, that pushed up stocks and other investments amid hopes of juicing the economy.
Wall Street’s grim realization that inflation is accelerating, not peaking, is sending US bond yields to their highest level in more than a decade. The two-year Treasury yield rose to 3.36% from 3.06% late Friday, marking its second straight big move. According to Tradeweb, it previously touched its highest level since 2007.
The 10-year yield rose from 3.15% to 3.37%, and the higher level would make mortgages and many other types of loans more expensive. It has touched its highest level since 2011.
Higher yields mean that prices for bonds are falling, a relatively rare occurrence for them in recent decades. They’re an especially painful hit for older and more conservative investors who depend on them as a safe part of their nest egg.
The gap between two-year and 10-year returns has also narrowed sharply, indicating weak optimism about the economy. When two-year yields top 10-year yields, an unusual occurrence, some investors view it as a sign of an impending recession.
Some of the biggest hits came for cryptocurrencies, which surged at the start of the pandemic as ultralow rates encouraged some investors to pile on the riskiest investments. According to Coindesk, bitcoin is down more than 14% from the day before and is down below $23,400. It is back where it was at the end of 2020, down from a peak of $68,990 late last year.
On Wall Street, the S&P 500 fell 151.23 points to 3,749.63 and fell 21.8% from its record set earlier this year in what investors call a bear market.
Bears hibernate, so bears represent a market that is retreating, said Sam Stovall, chief investment strategist at CFRA. In contrast, Wall Street’s nickname for a rising stock market is a bull market, because the bulls charge, Stovall said.
The S&P 500 is down nearly 9% in just three days. This is its worst stretch since the early days of the coronavirus crash in March 2020. The Dow fell 876.05, or 2.8%, to 30,516.74 on Monday, and the Nasdaq Composite fell 530.80, or 4.7%, to 10,809.23.
The coronavirus outbreak in early 2020 was Wall Street’s last bear market, and it was an unusually short one that lasted only a month. The S&P 500 approached a bear market last month, but it hasn’t stayed a day below the 20% range.
Staff writer George Avalos and Associated Press business writers Damien J. Trois and Elaine Kurtenbach contributed to this report.