The S&P 500 was on course to open up into bear market territory, while global stocks tumbled and bond yields jumped as inflation fears rattled investors around the world.
S&P 500 futures fell 2.2% on Monday. A drop of more than 1.3% at the close of trading on Monday would push the index into bear market territory, defined as a 20% loss from its recent high. The technology-focused Nasdaq 100, which entered bear market territory in March, fell 2.8%. Dow Jones Industrial Average futures were down 2%.
Markets have swung this year as investors weighed the risks of rising inflation and central bankers’ plans to undo the stimulus policies that have kept economies – and markets – afloat throughout the pandemic. This latest wave of volatility came after data on Friday showed US consumer prices rose 8.6% year-on-year in May, the fastest such rise since 1981. The report forced many to reset expectations for an interest rate hike from the Federal Reserve. .
“The fact that it has exceeded expectations has rattled investor nerves even more and shows how difficult it is to try to control inflation,” said Susanna Streeter, senior investment and markets analyst at Hargreaves Lansdown..
“The concern is that inflation is getting too hot for central banks to handle, and they will have to treat economies with cold water in the form of tougher policy.”
The Federal Reserve will begin its last two-day policy meeting on Tuesday, and most investors believe the central bank will announce Wednesday that it will raise the benchmark interest rate by half a percentage point. But expectations that the Fed will have to act more aggressively this year have risen since Friday’s inflation report.
On Monday, the futures group showed that traders have identified a roughly 78% probability that the Federal Reserve will raise interest rates by 2.5 percentage points by the end of the year, according to CME Group. That would equate to a half-percentage increase at every Federal Reserve meeting this year.
On Friday, traders put the odds of that at 50%, according to CME Group.
US technology stocks, which have surged during the pandemic, were on track for big drops on Monday. Apple shares fell 2.8% in pre-market trading, while Amazon.com shares lost 3.4%. Chip maker Nvidia lost 4.3% in pre-market trading and Tesla fell 2.7%. ID padsAnd the
The parent company of Facebook, lost 3%.
“This is what you call a bear market where fear prevails and pushes people out of the market and makes people empty their wallets and give up,” said Todd Morgan, chairman of Bel Air Investment Advisors in Los Angeles.
Still, mr. Morgan said developments in the next month or two could help ease inflationary pressures, such as lower demand for gasoline after the summer and slowing home demand due to higher mortgage rates.
“China’s opening up is a big deal too,” he said, as that should help ease supply chain constraints. Figures last week showed that Chinese exports to the rest of the world rose in May as Covid-19 restrictions eased, adding to signs of economic recovery there.
Expectations for higher rates were on display in the bond market as yields continued to rise after hitting the highest level since November 2018. The benchmark 10-year US Treasury yield rose to 3.238% from 3.156% on Friday. Bond yields rise as prices fall.
Cryptocurrencies are dropping further on Monday after interest rate concerns led to a sell-off at the end of the week. Bitcoin, the largest cryptocurrency, was trading at around $23,900, according to CoinDesk — a drop of nearly 13% from the previous 24 hours. Ethereum is down 15.9% from the previous 24 hours to $1,228.
Overseas stock markets were rattled by fears of US policy tightening and a possible slowdown in growth in the world’s largest economy. The Stoxx Europe 600 Continental Index is down 2.1% while the UK’s FTSE 100 Index is down 1.9%.
Delivery platforms were among the biggest losers in the European trading session. London-based Deliveroo was down 13%, while German Delivery Hero was down 5.6%.
Mrs. said. Streeter from Hargreaves Lansdown. “If people get upset, they will go to the grocery store instead of getting food delivered.”
Stock indices in Asia fell, with Hong Kong stock indices, Japan’s Nikkei 225 index and South Korea’s Kospi composite down about 3% or more. In China, the leading CSI 300 index lost about 1.2%.
In the currency markets, the dollar rose against a group of its peers with the ICE dollar index rising 0.6% to 104.73. Usually higher interest rates in the United States boost the value of the dollar.
The possibility of a wider interest rate differential between the US and Japan further weakened the Yen on Monday. The Japanese currency fell to a new multi-decade low, slipping past 135 against the dollar to trade at its weakest since 1998.
A weak yen usually lifts earnings for Japanese exporters, but shares of exporters including electronics and machinery companies fell on Monday on concerns that a Federal Reserve rate hike would calm the global economy. Toyota Motor Corporation.
Shares closed 3.3% lower in Tokyo, while Sony Group Corp. closed.
It fell 4.9%.
“The concern is so great that any expectations of benefits from a weak yen have faded,” said Masahiro Ichikawa, strategist at Sumitomo Mitsui DS Asset Management.
At the moment, the Bank of Japan is trying to keep interest rates low, adding to the downward pressure on the yen. The Bank of Japan on Monday made its largest daily fixed-rate purchase of Japanese government bonds since July 2018 to maintain the benchmark 10-year yield at or below the bank’s 0.25% ceiling.
–Quentin Webb and Megumi Fujikawa contributed to this article.
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