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NEW YORK (Reuters) - The benchmark S&P 500 was down more than 20% from its Jan. 3 record closing high in midday trading on Monday, as investors sold stocks amid worries over whether the Federal Reserve will be able to tame inflation without triggering a recession.
A close of more than 20% below the record high would confirm the index was in a bear market, according to a commonly-used definition. It would be the first time the S&P 500 has confirmed a bear market since the 2020 Wall Street plunge brought on by the COVID-19 pandemic.
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STOCKS: The S&P 500 was nearly 3%.
BONDS: U.S. 10-year Treasury yields hit their highest level since 2011 on Monday and a key part of the yield curve inverted for the first time since April.
FOREX: The U.S. dollar index rose to a fresh four-week high.
ROSS MAYFIELD, INVESTMENT STRATEGY ANALYST, BAIRD, LOUISVILLE, KENTUCKY
“The market had been trying to rally around the idea that inflation has peaked, and the Fed would not have to be more aggressive. That story fell apart on Friday with the CPI report, showing broad inflation being entrenched everywhere you look.”
Regarding recent signs of economic slowdown, “it all comes back to a highly aggressive Fed. It’s hard to parse out who’s responsible for what but the Fed has hits fingerprints all over any slowing.”
“I don’t think the Fed will or wants to surprise the market on Wednesday. They have gotten out of the business of causing shocks to the market because of their words or expectations, but for July and onward, 75 bp (interest rate hikes) are back on the table.”
“If they use language like ‘we’ll do whatever is necessary to bring inflation in check,’ to me that will translate to 75 basis point rate hikes.”
On the S&P bear market confirmation: “It’s an important level but a majority of the market was already 20% or more off their highs as of Friday. It’s important, it’s psychologically important, but we’ve been in a bear market for quite some time.”
“To me the story from here is how earnings play out. It makes sense that multiples are contracting. To date, forward earnings have continued to rise. Obviously, there’s been wage and materials inflation, and the extent to which earnings hold up is the most important thing from here.”
Compiled by the Global Finance & Markets Breaking News team
