Following a worse-than-expected inflation report on Friday, U.S. equity indices fell across the board on Monday, including the S&P 500 which saw an early 3% drop and, if the decline continues until ‘at the end of trading, officially enters bear market territory by passing a 20% decline from a recent high.
Market watchers say investors are retreating from risky bets as fears of prolonged inflation and the looming threat of a recession spark heightened interest in fiscal safe harbors.
The tech-focused NASDAQ composite was down nearly 4% at midday on Monday and surpassed its own 20% bear market drop in March.
The battle to curb soaring prices: The center of attention on Wall Street was once again the Federal Reserve, which is struggling to control inflation. Its primary means of doing so is by raising interest rates to slow the overall economy, a blunt tool that risks causing a recession if used too aggressively.
Speculation is mounting that the Fed could raise its main short-term interest rate by three-quarters of a percentage point later this week. That’s triple the usual amount and something the Fed hasn’t done since 1994. Traders now see a 42% chance 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 streak of bigger-than-usual increases. That would come on top of some already discouraging signals about the economy and corporate earnings, including a record early reading on consumer sentiment that has been soured by high gasoline prices. The average price of a gallon of regular gasoline in the United States hit an all-time high of $5.01 on Monday, according to AAA data.
Too hot to handle: Markets have swung this year as investors weighed the risks of a spike in inflation and central bankers’ plans to undo stimulus policies that have kept economies — and markets — afloat throughout the pandemic, according to the Wall Street Journal. This latest round of volatility came after data on Friday showed US consumer prices rose 8.6% year-on-year in May, the fastest rise since 1981. The report forced many to reconsider expectations of higher interest rates from the Federal Reserve.
“The very fact that it beat expectations further riled investors and showed how difficult it is to try to contain inflation,” said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown. , to the Wall Street Journal. “The worry is that inflation is getting too hot for central banks to handle and they will have to dose the savings with cold water in the form of tougher policy.”
The worst of the worst: The U.S. Department of Labor’s Mountain West reporting region, which includes Utah, has seen some of the worst inflation rates in the country in the past six months, and the May report released on Friday did not exception.
While the national average inflation rate for May was 8.6%, the rate for the Mountain West states was 9.4% from the same time last year.
And, Utah broke its own all-time record for gasoline on Monday, with the average price of a gallon of regular gas now at $5.02 statewide.
Contributor: Associated press