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Wall Street stumbled on Monday, extending last week’s selloff, as investors resumed jitters about inflation and the pace of interest rate hikes ahead of the Federal Reserve’s annual economic symposium.
The Dow Jones industrial average ended the day at 33,063, down 643 points, or 1.9 percent. The broader S&P 500 fell 2.1 percent to close at just over 4,138, while the tech-heavy Nasdaq erased 2.5 percent to end at just over 12,381.
The losses follow Friday’s pullback, which snapped a summer rally that had given the S&P 500 four straight weeks of gains and lifted it from mid-June lows. That’s when the index went into a bear market, meaning it had lost 20 percent of its value from its most recent peak. Whether the recent losses are temporary or represent a change in direction remains to be seen.
“While some bulls may hope that the summer rally means the bear market is behind us, it’s important to note that bear market rallies like this are not uncommon,” Larkin said.
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Monday’s market jitters come as Fed officials prepare to meet in Jackson Hole, Wyo., for their annual economic symposium. Investors are keenly interested in what Chairman Jerome H. Powell might say about inflation on Friday and any sign that the central bank may change course in its efforts to combat it.
The meeting is separate from the central bank’s regular policy-setting meetings, during which the Federal Open Market Committee assesses economic conditions and determines monetary policy, including whether to change interest rates.
The stock market’s steady sell-off through much of 2022 has been closely tied to the Fed’s campaign to curb red-hot inflation by raising interest rates. Higher rates reduce spending, which theoretically keeps prices from rising as quickly. The Fed has raised rates four times this year to that end, with three more hikes planned. But the central bank also risks raising rates too quickly and tipping the economy into recession.
The stock market’s most recent rally was driven largely by lower inflation, which moderated to 8.5 percent last month thanks to falling gas and energy prices. But Powell has indicated that the central bank would need to see sustained evidence that prices are under control before changing course.
Investors now realize that the Fed still has a long way to go before reducing inflation to its 2 percent target, said Wayne Wicker, chief investment officer at MissionSquare Retirement. This suggests that there could be more market volatility.
“I think we’re about to enter a period of turmoil here,” Sand Hill Global Advisors Chief Investment Officer Brenda Vingiello told CNBC. “We need more data to give us a bigger indication of how far the Fed has to go.”
On Monday, riskier investments such as meme stocks and cryptocurrencies took a hit, leading to heavy losses for these speculative assets.
Bed Bath & Beyond continued its decline, shedding an additional 16.2 percent to $9.24. The home goods chain has been in freefall since two major shareholders liquidated their holdings last week, erasing most of the August rally that took it above $25 a share. AMC, another favorite of small investors, sank 42 percent on Monday after the owner of Regal Cinemas warned of a possible bankruptcy filing, underscoring the industry’s struggle to attract moviegoers after the pandemic. Cryptocurrencies also lost value, with bitcoin down 2.3 percent on Monday.
Ford shares fell 5 percent after the automaker announced plans to cut 3,000 jobs as part of its transition to electric vehicles.
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Meanwhile, European markets are also reeling over whether policymakers can rein in inflation without slowing growth too much.
In Europe, too, central banks are controlling monetary policy to control inflation, although they are raising rates at a slower pace than their American counterparts. Britain’s central bank recently delivered its biggest rate hike since 1995, raising its key interest rate by 0.5 percent. The European Union raised rates by a similar margin.
Analysts believe they are moving more cautiously, in part, because the continent is facing an energy crisis linked to Russia’s invasion of Ukraine and its status as a major supplier of natural gas. The odds of a recession are greater in Europe than in the United States, LPL Financial chief economist Jeffrey Roach said.
The pan-European Stoxx 600 lost nearly 1 percent on Monday. Germany’s Dax index lost 1.2% and the UK’s FTSE 100 fell 0.2%.
China, meanwhile, faces a different challenge. The country’s struggling economy has seen a marked decline in economic growth, stemming in part from its “zero covid” policy. A heat wave enveloping much of the country is also forcing a slowdown in factory output there, said LPL Financial global strategist Quincy Crosby.
The country’s central bank is now in a position to lower interest rates to stimulate economic growth.
Oil prices were largely flat on Monday, with West Texas Intermediate crude trading above $90 a barrel and Brent crude, the global benchmark, trading below $97.