Stocks plunged on Monday on fears that China’s economy is faltering and interest rates hiked to curb inflation.
The S&P 500 hit its lowest point in a year and posted its fifth consecutive weekly loss.
Everything from bitcoin to crude oil has been beaten in the US, European and Asian markets.
Stocks widened their losses on Wall Street on Monday, sending the S&P 500 to its lowest close in more than a year.
The S&P 500 fell 3.2% and the Nasdaq fell 4.3%. The Dow Jones Industrial Average fell 2%. The yield on the 10-year Treasury note fell to 3.03%.
The S&P 500 hit its lowest point in a year and posted its fifth straight weekly loss
The Dow Jones Industrial Average fell 2%. The yield on the 10-year Treasury fell to 3.03%
The fear is that China’s strict anti-COVID policies will further disrupt global trade and supply chains
The Dow Jones Industrial Average fell 374 points, or 1.1%, to 32,520 as of 3:16 p.m. EST, and the Nasdaq composite was down 3.4%, stocks focused on the technology having again suffered the brunt of the sale. Monday’s sharp drop leaves the S&P 500, Wall Street’s main measure of health, down about 16% from its record high set earlier this year.
Much of the damage this year is the result of the Federal Reserve’s aggressive decision not to do everything in its power to support financial markets and the economy. The central bank has already pulled its main short-term interest rate from its all-time high of near zero, where it has sat for most of the pandemic. Last week, he signaled further increases of double the usual amount that could be achieved in the coming months, in hopes of stamping out the high inflation sweeping the economy.
Most of the damage this year is the result of the Federal Reserve’s aggressive decision not to do all it can to support financial markets and the economy.
Monday’s sharp drop leaves the S&P 500, Wall Street’s main measure of health, down about 16% from its record high set earlier this year.
Fears Fed hike in interest rates will slow economy too much
Deliberate measures will slow the economy by making borrowing more expensive. The risk is that the Fed could cause a recession if it goes too far or too quickly. In the meantime, higher rates discourage investors from paying very high prices for investments, as investors can get more than before by holding ultra-safe Treasuries instead.
This has helped cause bitcoin to fall around 29% since the start of April, for example. It fell 10.8% on Monday, according to Coindesk. Concerns about the world’s second-largest economy added to the gloom on Monday. Analysts cited comments over the weekend from a Chinese official warning of a dire jobs situation as the country hopes to halt the spread of COVID-19.
Shanghai authorities have tightened restrictions again, amid complaints from citizens that it seems endless, just as the city emerged from a month-long strict lockdown after an outbreak.
The fear is that China’s strict anti-COVID policies will further disrupt global trade and supply chains, while dampening its economy, which for years has been a key driver of global growth.
In the past, Wall Street has been able to hold steady despite similar pressures due to the strong earnings growth companies have been producing.
But this past season of earnings releases from major US corporations has generated less enthusiasm. Overall, companies are reporting stronger-than-expected earnings for the last quarter, as is usually the case. But the discouraging signs for future growth have been many.
Supply chain disruptions could continue if China keeps strict anti-Covid policies intact
The number of companies citing “weak demand” in their conference calls following earnings reports reached its highest level since the second quarter of 2020, strategist Savita Subramanian wrote in a BofA Global Research report. Tech profits are also lagging behind, she said.
The technology sector is the largest in the S&P 500 by market value, giving it additional leverage for market moves. Many tech-focused companies have seen their profits soar during the pandemic as people seek new ways to work and play while cooped up at home. But their slowing earnings growth makes their shares vulnerable after their prices soared so high on expectations of continued gains.
The higher interest rates put in place by the Fed are also hitting their stock prices hard, as they are considered to be among the most expensive in the market. The Nasdaq composite’s loss of around 25% for 2022 so far is much stronger than that of other indices.
Electric carmaker Rivian Automotive fell 19.1% on Monday as restrictions expired that prevented some large investors from selling their shares after its stock market debut six months ago. It has lost more than three quarters of its value so far this year.
The 10-year Treasury yield hit its highest level since 2018 as inflation and expectations for Fed action rose. It moderated on Monday, plunging to 3.07% from 3.12% on Friday evening. But that’s still more than double the 1.51% level where it started the year.
In Asian stock markets, Japan’s Nikkei 225 fell 2.5% and South Korea’s Kospi 1.3%. Shares in Shanghai edged up 0.1%.
In Europe, the French CAC 40 fell by 2.8% and the German DAX by 2.1%. London’s FTSE 100 slipped 2.3%.
In addition to concerns about inflation and coronavirus restrictions, the war in Ukraine remains a major cause of uncertainty. More than 60 people are believed to have been killed after a Russian bomb razed a school used as a shelter, Ukrainian officials said. Moscow forces pushed their attack on the defenders inside the Mariupol steelworks in an apparent race to capture the city ahead of Russia’s Victory Day holiday on Monday.
Even the energy sector, star of recent weeks, was under pressure on Monday. Benchmark U.S. crude fell 6.1% to $103.09 a barrel, although it is still up around 40% this year. Brent crude, the international standard, fell 5.7% to settle at $105.94 a barrel.