Wall Street was particularly dark Monday, as inflation fears intensify.
The S&P 500 plunged almost 4% and entered a bear market territory. This means that the benchmark index has dropped more than 20% since its highest point. Although the S&P 500 briefly entered a bearish market last month, it was able to recover and reverse that trend. This feat was not possible this time.
Other indexes suffered as well. The Dow Jones Industrial Average fell 2.8% or almost 900 points while the Nasdaq dropped nearly 4.7%.
The falls were triggered by a stronger-than-expected inflation report on Friday, which is raising concerns the Federal Reserve will need to raise interest rates even more aggressively this year.
On Tuesday, the Fed will begin its two-day meeting. It had been expected that it would raise interest rates by half an percent for the second consecutive month.
According to the latest inflation report, consumer prices rose at their fastest rate in over 40-years. This raises the possibility of a larger rate hike in this week and in the coming months.
These actions might help to curb price gains, but the markets fear that the strong reaction from the central bank may also push the economy into recession.
According to Sam Stovall (chief investment strategist at CFRA), “U.S. equity market are reacting negatively last week’s hotter than expected reading for inflation.”
Stovall says that investors are becoming increasingly concerned about the Fed’s inability to slow inflation without putting the economy in recession. Stovall refers to situations in which a central bank delays in responding to price gains.
Inflation fears have made it a difficult year for stocks. The Nasdaq has been experiencing a bearish market for months, owing to its higher concentration of technology shares.
A bear market is a sign of investor pessimism. It is also symbolic of a prolonged and deep market selloff.
The S&P 500 entering one is a strong warning signal for the economy.
This index tracks 500 stocks from the most important U.S. corporations. It is one of the most important indicators of the U.S economy’s health and serves as a barometer for corporate America’s health.
Trillions of dollars are invested in index funds, which make up the stocks of S&P 500. The index’s value falls and leaves less income for retirement, which is a major concern for retirees.
Stocks aren’t the only market that is suffering. The cryptocurrencies are also falling sharply. Bitcoin is down 50% since the beginning of the year. Bond markets are also suffering from inflation fears.
Investors have a few options.
Wall Street’s outlook has been clouded by uncertainty and inflation. The current war in Ukraine has caused higher commodity prices around the world, and energy prices have continued their climb.
According to AAA, this is the first time that the national average price for regular gasoline has exceeded $5.00.
A growing number of American executives have issued dire warnings in recent weeks about the state of the U.S. economic future. Jamie Dimon, CEO of JPMorgan Chase, told investors that he sees an economic storm coming. Elon Musk, CEO of Tesla, also announced plans to reduce the number of salaried employees at the automaker by 10%.
Musk sent an email to his staff stating that he felt “super bad” about the economy.
