Dow Plunges Over 700 Points, S&P 500 Enters Bear Market Territory As Inflation Fears Roil Markets

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Topline

The stock market tanked Monday morning, with the S&P 500 falling back into bear market territory as investors nervously look ahead to the Federal Reserve’s upcoming policy meeting, with last week’s record-high inflation reading leading to a spike in recession fears.

Key Facts

Stocks added to losses after a major sell-off on Friday: The Dow Jones Industrial Average lost nearly 2.4%, around 750 points, while the S&P 500 dropped 3.2% and the tech-heavy Nasdaq Composite 3.8%.

The benchmark S&P 500 is on track to hit a new low point for 2022, falling back into bear market territory on Monday and down more than 20% from its record high at the start of the year.

Markets continued to take a hit after the Labor Department reported that inflation unexpectedly returned to record highs last month, spiking 8.6% compared to a year ago and adding to fears of a possible recession.

Investors are now nervously looking ahead to the Federal Reserve’s upcoming policy meeting later this week, with expectations that the central bank will raise interest rates by at least a half-percentage point—if not more—amid growing urgency to combat surging consumer prices.

Rates on government bonds surged on Monday amid the negative investor sentiment:The short-term 2-year Treasury yield jumped to over 3.2%—its highest level since 2007, while also at one point trading above the 10-year Treasury note, a so-called yield curve inversion which typically indicates a looming recession.

The cryptocurrency market saw a huge selloff on Monday, with the price of Bitcoin plunging to its lowest point in nearly two years, falling below $24,000 as investors dumped risky assets amid rising rates.

Crucial Quote:

“The brief window of hope that opened in the back half of May as it looked like U.S. inflation/Fed tightening forecasts were hitting a peak and China was reopening has snapped violently shut,” says Vital Knowledge founder Adam Crisafulli, with investors now “back to wallowing in a hole of despair following the huge CPI on Friday.”

What To Watch For:

“Concerns over inflation and its impact on economic growth have become heightened over the last several days, and unlike prior periods in recent history where growth has come into question, with inflation pressures as strong as they are, there is little optimism that the Fed can help to cushion the blow,” according to Bespoke Investment Group.

Key Background:

All three major averages recently wrapped up their worst down week since January, falling by roughly 5% or more. The majority of last week’s losses came on Friday after hotter-than-expected inflation data spooked markets and raised recession fears, with the Dow plunging nearly 900 points in one day.

Further Reading:

Dow Plunges Nearly 900 Points After ‘Very Troubling’ Inflation Report Fuels Fears Of Impending Recession (Forbes)

Inflation Unexpectedly Spiked 8.6% In May—Hitting 40-Year High As Gas Prices Surge Again (Forbes)

Crypto Crash Deepens: Market Drops Below $1 Trillion, Bitcoin Falls To 2020 Levels (Forbes)

Dow Drops 600 Points Ahead Of Looming Inflation Report (Forbes)