The 2022 stock sell-off intensified on Monday with the S&P 500 falling to a new low for the year. The index is on track to close in bear market territory as recession fears mount ahead of a key Federal Reserve meeting later this week.
The S&P 500 fell 4% to its lowest level since March 2021, pushing its losses from its January record to more than 21%. The benchmark is headed for its first close in bear market territory after briefly trading there intraday about three weeks ago. Some on Wall Street say it’s not an official bear market until it closes there. The last bear market in stocks was in March 2020 at the start of the pandemic.
The Dow Jones Industrial Average fell 980 points, or about 3.14%, and the Nasdaq Composite fell about 4.8%. Major averages hit their session lows in the last 30 minutes after a Wall Street Journal report suggested the Fed would consider raising rates by 0.75% on Wednesday, more than the half point hike currently expected. .
There were few places to hide. Treasuries fell, sending the 10-year yield to its biggest move since March 2020. Bitcoin was hit by 15%. At one point during the trading day, all S&P 500 stocks were down. At last count, only a handful were green.
The moves came as investors continued to digest a hotter-than-expected inflation report on Friday and braced for the Fed to hike rates later in the week.
“Anyone who wants to be bullish can’t find anything to hang their hat on,” said Jack Ablin, founding partner of Cresset Capital. “There’s nothing right now with questionable valuations, with rising interest rates, the direction of the economy uncertain.”
Recession fears grow
Shares of Boeing, Salesforce and American Express fell more than 9%, 6% and 4%, respectively, dragging down the Dow as recession fears mounted. Hit tech stocks were also hit with Netflix, Tesla and Nvidia all falling more than 6% as the Nasdaq hit a new 52-week low and its lowest level since November 2020.
Travel stocks also fell on Monday as Carnival Corporation and Norwegian Cruise Line plunged 11% and 12%, respectively. Delta Air Lines fell more than 7%, while United fell about 10%.
Every major sector in the S&P 500 fell in the red, with energy and consumer discretionary down more than 4%. Information technology, materials and communications services also fell more than 3%.
The dramatic moves lower could indicate that many investors are taking profits or repositioning their portfolios, and may indicate that markets are in “a capitulation stage,” said Jeff Kilburg, chief investment officer at Sanctuary Wealth.
As stocks sold off, short-term rates rose on Monday. The 10-year Treasury rose 20 basis points to 3.35% as investors continued to bet the Fed may have to be more aggressive to squash inflation. Prices move inversely to yields and 1 basis point equals 0.01%. The 2-year Treasury yield rose 23 basis points to 3.28%.
Monday’s moves came after last week’s main averages posted their biggest weekly declines since late January as investors grew increasingly concerned that rising inflation would push the economy into a recession. The Bureau of Labor Statistics reported Friday that the US consumer price index rose 8.6% last month from a year earlier, its fastest rise since December 1981. That gain beat expectations of consumers. economists.
Gasoline prices also topped $5 a gallon over the weekend, further fueling fears about rising inflation and falling consumer confidence.
Meanwhile, Bitcoin dipped below $24,000 on Monday and hit its lowest level since 2020 as risk-averse investors continued to dump cryptocurrencies as rates rise. News shares from crypto-related companies, including Coinbase and Microstrategy, were down 13% and 29%, respectively.
“The bitcoin cryptocurrency has been a great indicator of investors’ risk threshold for stocks,” wrote JC O’Hara, chief market technician at MKM Partners. “A lot of the longs that they bought last year are still stuck and so we could easily see a pullback to 19,500. That would be a bearish reading for stocks.”
Investors await Wednesday, when the Fed is expected to announce a rate hike of at least half a point. The central bank has already raised rates twice this year, including a 50 basis point increase in May in an effort to stave off a recent rise in inflation.
Some economists believe the Fed could even raise rates by 0.75% this week following Friday’s CPI report.
time to play defense
If history is any guide, this sale may have more to go. Data from Bespoke Investment Group shows that since World War II there have been 14 bear markets at the close and, on average, the S&P 500 is down a median 30%, with the decline lasting a median of 359 days.
Amid Monday’s sell-off, investors should maintain a “defensive stance” in areas such as consumer staples and health care, said Keith Lerner of Truist. These stocks may not post big gains, but they may outperform relative to other sectors, he said.
Ablin sees gold as a continued safe haven even when prices fall that day, along with companies paying steady dividends.
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