US stocks plunge into bear market as S&P 500
and Dow Jones sink
S&P 500 plummets to new low for the year while Dow
Jones closes down 875 points, as US investors fret about possible recession
Dominic
Rushe in New York and agencies
@dominicru
Mon 13 Jun
2022 21.16 BST
https://www.theguardian.com/business/2022/jun/13/wall-street-stock-markets-bear-market
Fears about
a possible recession pounded stock markets worldwide on Monday, and Wall
Street’s S&P 500 tumbled into the maw of what’s known as a bear market
after sinking more than 20% below its record set early this year.
The S&P
500 dropped 3.9% to a new low for the year as investors resumed trading after
the weekend and reflected on Friday’s stunning news that inflation is getting
worse, not better.
The Dow
Jones was down more than 875 points, or 2.8%, and the tech-heavy Nasdaq
composite crumpled 4.7% as investors continued to sour on once high-flying tech
stocks.
The center
of Wall Street’s focus was again on the Federal Reserve, which is scrambling to
get inflation under control. Its main method is to raise interest rates in
order to slow the economy, a blunt tool that risks a recession if used too
aggressively.
The Wall
Street Journal reported on Monday that the latest inflation news could lead the
Fed to raise its 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 34% probability of such a 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.
While the
job market remains robust – with unemployment at 3.6% in May, near a
half-century low – the stock market selloff marks a sharp turnaround from
earlier in the pandemic, when central banks worldwide slashed rates to record
lows and made other moves that propped up prices for stocks and other
investments in hopes of juicing the economy.
Such
expectations are also sending US bond yields to their highest levels in years.
The two-year Treasury yield shot to 3.23% from 3.06% late Friday, its second
straight major move higher. It has more than quadrupled this year and touched
its highest level since 2008.
The 10-year
yield jumped to 3.32% from 3.15%, and the higher level will make mortgages and
many other kinds of loans for households and for businesses more expensive. It
has more than doubled this year.
The gap
between the two-year and 10-year yields is also narrowing, a signal of
increased pessimism about the economy in the bond market. If the two-year yield
tops the 10-year yield, some investors see it as a sign of a looming recession.
The pain
for markets was worldwide as investors braced for more aggressive moves from a
coterie of central banks.
In Asia,
indexes fell at least 3% in Seoul, Tokyo and Hong Kong. Stocks there were also
hurt by worries about Covid infections in China, which could push authorities
to resume tough, business-slowing restrictions.
In Europe,
Germany’s DAX lost 2.7%, and the French CAC 40 fell 2.8%. The FTSE 100 in
London dropped 1.8%.
Some of the
biggest hits came for cryptocurrencies, which soared early in the pandemic when
record-low interest rates encouraged some investors to pile into the riskiest
investments. Bitcoin tumbled more than 18% and dropped below $22,700, according
to Coindesk. It’s back to where it was in late 2020 and down from a peak of
$68,990 late last year.
Bears
hibernate, so bears represent a market that’s retreating, said Sam Stovall,
chief investment strategist at CFRA. In contrast, Wall Street’s nickname for a
surging stock market is a bull market, because bulls charge, Stovall said.
The last
bear market wasn’t that long ago, in 2020, but it was an unusually short one
that lasted only about a month. The S&P 500 got close to a bear market last
month, briefly dipping more than 20% below its record, but it didn’t finish a
day below that threshold.
This would
also be the first bear market for many novice investors who got into stock
trading for the first time after the pandemic, a period when stocks largely
seemed to go only up. That is, they did until inflation showed that it was
worse than just a “transitory” problem as initially portrayed.
Associated
Press contributed to this story.
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