Wall Street entered a bear market Monday as the S&P 500 sank 3.9%, bringing it more than 20% below the record high it set in January.
Fears about a fragile economy and stubbornly high inflation have slammed the stock market in recent days and sent Treasury yields surging to their highest levels in years. A report last week that inflation was getting worse, not better as many had hoped, sent a chill through markets that carried over into this week. Investors expect the Federal Reserve will get more aggressive to get inflation under control, even if it risks a recession.
The S&P 500 fell 151.23 points, or 3.9%, to 3,749.63. The Dow Jones Industrial Average fell 876.05 points, or 2.8%, to 30,516.74. The Nasdaq fell 530.80 points, or 4.7%, to 10,809.23.
Investors are responding to May’s Consumer Price Index report which showed that inflation unexpectedly had not peaked. The big question weighing on investors is how high the Federal Reserve will raise interest rates to curb inflation, which hit a new 40-year high last month.
Inflation data may prompt Fed to raise interest rates even higher
The growing expectation is for the Fed to raise its key short-term interest rate by half a percentage point at each of its next three meetings, beginning next week. Last month’s half-point increase is the only time since 2000 that the Fed has raised rates by that much.
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Surging prices and expectations about Fed policy have sent the two-year Treasury yield to its highest level since 2008.
Bitcoin, crypto crashing
On the opposite end of the spectrum of risk, cryptocurrencies are getting pummeled. Bitcoin tumbled another 12% and fell below $24,000 early Monday, levels last seen in the latter part of 2020. The price for Bitcoin neared $68,000 late last year.
But the damage is broadening with retailers and others warning on upcoming profits.
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Record-low interest rates engineered by the Fed and other central banks have helped keep investment prices high. Now the “easy mode” for investors is being switched off. Since higher interest rates make borrowing more expensive, dragging on spending and investments by households and companies, there also is a risk the Fed could push the U.S. economy into a recession.
The fear is that food and fuel costs will keep surging regardless of how aggressively the Fed moves, partly because of the crisis in Ukraine, which is a major breadbasket for the world.
Gas prices hit $5 nationally
On Saturday, the national average for a gallon of regular gas surpassed $5 by a fraction of a penny, according to the AAA auto club.
In other trading, benchmark U.S. crude oil lost $2.09 to $118.58 per barrel in electronic trading on the New York Mercantile Exchange. It lost 84 cents to $120.67 on Friday.
Brent crude, the pricing standard for international trading, gave up $1.99 to $120.02 per barrel.
Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here