Wall Street’s relentless decline extended into its sixth week on Monday, fueled by new data from China that added to concerns about a global economy battered by high inflation, rising interest rates and a malfunctioning supply chain.
The S&P 500 fell 3.2 percent, adding to a downdraft that has knocked 16.3 percent off the index this year, including a five-week selloff that is the market’s longest decline in more of a decade.
The drop sends stocks nearing a bear market, Wall Street’s term for a drop of 20 percent or more from recent highs, a pullback that serves as a marker of a severe change in sentiment.
The focus of attention Monday was on China’s economy, after customs data showed the country’s export growth slowed significantly in April and Li Keqiang, the Chinese premier, warned this weekend that the current state of the The nation’s labor market was “complicated and serious.” ”
The trade slowdown was a product of China’s efforts to contain a Covid-19 outbreak with lockdowns that have idled millions of workers, as well as weaker demand for Chinese-made goods from the United States and Europe, economists said, and the news reverberated around the world. global markets: Oil prices fell more than 6 percent, dragging down shares of oil producers, while shares in Europe and Asia also tumbled. The Euro Stoxx 600 fell 2.9 percent and Hong Kong’s Hang Seng Index fell 3.8 percent.
Investors have a long list of reasons to stay away from stocks right now. Rising prices and higher interest rates are sure to hurt consumption in the United States, while the war in Ukraine and lockdowns in China are hampering supplies of everything from food to energy, exacerbating the problem of inflation.
The Fed’s effort to cool down the economy also means that a crutch for investors over the past two years — cheap borrowing costs and easy access to capital that helped fuel a jaw-dropping rally in stocks — is starting to fade.
There are no signs that any of Wall Street’s main concerns will be resolved any time soon. The Fed, which raised its benchmark interest rate by half a percentage point last week, is expected to keep raising rates until it is confident consumer prices are finally under control, something investors fear will result in an economic downturn. in United States.
On Monday, Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said during an interview that if the economy doesn’t respond to the Fed’s interest rate hikes, he may need to step up efforts to cool growth. . That could include raising interest rates by three-quarters of a percentage point in one fell swoop, though he doesn’t think that’s necessary at the moment.
“If the economy doesn’t respond, to me a 75 basis point move might be appropriate, but we won’t know for some time,” he said, later adding: “If we really start to see inflation moving very far out of our 2 percent target, any further, that would be a real concern.”
Conversely, any signs that inflation is easing, which would allow the Fed to consider slowing its campaign to raise interest rates, would help allay concerns, analysts said.
Annual inflation hit 8.5 percent in March, its fastest pace in more than 40 years, with fuel and food driving prices higher, and economists expect price gains to have slowed slightly when release consumer price index data for April later in the week. . A month of better data probably won’t be enough to calm markets, analysts say, but it could be a start.
“The bottom line is that markets don’t like uncertainty and the current macro environment is dim at best,” said Brian Price, director of investment management at Commonwealth Financial Network. “Any positive developments on the geopolitical front, or softer-than-expected inflation readings, could help reduce recent selling pressure.”
No matter when it ends, there is no doubt that the recent bout of volatility has stood out in a market that for years was remarkably placid.
In 2021, there was seemingly no bad news that could stop the US stock market, with the S&P 500 gaining 26.9 percent, and the index posting daily gains or losses of more than 2.5 percent alone. once, on January 27, as shares of memes like GameStop and AMC Entertainment soared into a speculative frenzy and the Federal Reserve said the resurgence of the coronavirus was weighing on the economic recovery.
That began to change when the Fed stopped describing inflation as “transient,” or something that could end when pandemic lockdowns were eased, and instead took a more aggressive tone to rapidly cool prices. As of Monday, there have already been eight days this year with gains or losses of at least 2.5 percent, roughly one in nine trading days. All those big daily changes have been in March, April and May.
Strings of big wins and losses are more typical of recessions and the periods that follow them. Before the pandemic wreaked havoc on the stock market in 2020, the last set of big changes was in 2007-11, during the financial crisis and recovery from it. Before that, the dotcom boom and bust and the attacks of September 11, 2001 brought volatility.
Bear markets are equally rare, with the last two occurring in early 2020 and in the previous financial crisis. The 20 percent trigger for a bear market, like the 10 percent trigger for what investors call a “correction,” are somewhat arbitrary thresholds, but they serve as mile markers to show that investors have turned significantly lower. more pessimistic about the world.
Reasons for that pessimism abound right now and “will drag the S&P 500 into a bear market,” said Victoria Greene, chief investment officer at G Squared Private Wealth, an advisory firm.
“We still have some structural issues — a hawkish Fed, Ukraine, commodity price pressure, China Covid lockdowns, inflation — that are putting pressure on growth expectations,” he said. “The pressures of the macro world are too much for equities to overcome right now.”
The report was contributed by claire fu Joanna Smialek melina delkic Y William P Davis.