Following a worse-than-expected inflation report on Friday, U.S. stock indexes were down across the board on Monday, including the S&P 500 which saw an early 3% slump and, should the dip hold until the end of trading, officially enters bear market territory by passing a 20% decline since a recent high.
Market watchers say investors are pulling out of risky bets as fears of protracted inflation, and the looming threat of a recession, drive increased interest in fiscal safe harbors.
The technology-focused NASDAQ composite was down nearly 4% by midday Monday and surpassed its own 20% bear market drop in March.
The battle to rein in soaring prices: The center of Wall Street’s focus was again on the Federal Reserve, which is scrambling to get inflation under control. Its main way to do that is to raise interest rates in order to slow the overall economy, a blunt tool that carries the risk of causing a recession if used too aggressively.
Speculation is building that the Fed later this week 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 42% 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. The average price of a gallon of regular gasoline in the U.S. hit an all-time record of $5.01 on Monday, according to AAA data.
Too hot to handle: Markets have swung this year as investors assessed the risks of surging inflation and central bankers’ plans for unwinding stimulus policies that kept economies — and markets — afloat throughout the pandemic, according to the Wall Street Journal. This latest bout of volatility came after data Friday showed U.S. consumer prices rose 8.6% year-over-year in May, the fastest such rise since 1981. The report forced many to reset expectations for higher interest rates from the Federal Reserve.
“The very fact that it overshot expectations has really frayed investors’ nerves even more and shown how difficult it is to try to keep a lid on inflation,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, told the Wall Street Journal. “The worry is that inflation is getting too hot to handle for central banks and they’ll have to dose economies with cold water in the form of tighter policy.”
Worst of the worse: The U.S. Department of Labor’s designated Mountain West reporting region, which includes Utah, has seen some of the worst inflation rates in the country over the past six months, and the May report released on Friday was no exception.
While the national average inflation rate for May clocked in at 8.6%, the rate for Mountain West states was 9.4% over the same time last year.
And, Utah hit its own all-time record for gasoline on Monday, with the average price for a gallon of regular now at $5.02 across the state.
Contributing: Associated Press