Stocks sold off Monday, pushing the S&P 500 to a fresh 2022 low and back into bear market territory, as recession fears grew ahead of a key Federal Reserve meeting this week.
The Dow Jones Industrial Average dropped 810 points, or about 2.6 percent, the S&P 500 fell 3.5 percent and the Nasdaq Composite tumbled 4.35 percent.
The moves came as investors continued to digest a hotter-than-expected inflation report on Friday and braced for the Fed to raise rates later in the week as the 10-year Treasury yield saw its largest jump since March 2020.
“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 out there right now with valuations under question, with interest rates rising, the direction of the economy uncertain.”
The S&P 500 on Monday hit a new intraday low for the year and its lowest level since March 2021. The benchmark is nearly 21 percent from its record, back in bear market territory after trading there briefly on an intraday basis about three weeks ago.
Data from Bespoke Investment Group shows that since World War II there have been 14 bear markets on a closing basis and on average, the S&P 500 has pulled back a median of 30 percent, with the downturn lasting a median of 359 days.
“The odds of a ‘June Swoon’ straight to 3,400 have gone up significantly, in our view,” wrote Jonathan Krinsky, technical analyst for BTIG.
“We thought a momentum reversion where winners got bought and losers sold would create chop at the index level, but last week is a reminder that the risk continues to be to the downside,” Krinsky added.
Monday’s sell-off was broad-based, with just 10 S&P 500 components trading higher. Decliners at the New York Stock Exchange also outpaced advancers 21-1.
The moves could indicate that many investors are profit-taking or repositioning their portfolios, and may signal that markets are in “a capitulation stage,” said Jeff Kilburg, chief investment officer of Sanctuary Wealth.
Recession fears growing
Shares of Boeing, Salesforce and American Express fell more than 9 percent, 6 percent and 4 percent, respectively, dragging down the Dow. Beaten-up tech shares also took a hit with Netflix, Tesla and Nvidia down more than 6 percent as the Nasdaq touched a fresh 52-week low and its lowest level since November 2020.
Travel stocks also slipped on Monday as Carnival Corporation and Norwegian Cruise Line plummeted about 11 percent and 12 percent, respectively. Delta Air Lines dropped more than 7 percent while United tumbled about 10 percent.
All major S&P 500 sectors dipped into the red, with energy and consumer discretionary down more than 4 percent. Information technology, materials and communication services also slipped more than 3 percent.
Amid Monday’s sell-off, investors should maintain a “defensive posture” in areas like consumer staples and health care, said Truist’s Keith Lerner. These stocks may not post big gains but can outperform relative to other sectors, he said.
Ablin is looking at gold as a continued safe haven even as prices fall on the day, along with companies that pay consistent dividends.
As equities sold off short-term rates jumped on Monday. The 10-year Treasury rose 20 basis points higher to 3.35 percent, as investors continued to bet the Fed may have to get more aggressive to squash inflation. The 2-year Treasury yield was last up 23 basis points to 3.28 percent and earlier traded above its 10-year counterpart for the first time since April, a so-called yield curve inversion seen as an indicator of a recession.
Monday’s moves came after the major averages last week posted their biggest weekly declines since late January as investors grew increasingly concerned rising inflation will tip the economy into a recession.
The Bureau of Labor Statistics reported Friday that the U.S. consumer price index rose last month by 8.6 percent from a year ago, its fastest increase since December 1981. That gain topped economists’ expectations.
Gasoline prices also hit above $5 a gallon over the weekend, further fanning fears over rising inflation and falling consumer confidence.
Meanwhile, Bitcoin tumbled below $24,000 on Monday and hit its lowest level since 2020 as risk-averse investors continued to dump crypto as rates rise. The news sent shared of crypto-related companies including Coinbase and Microstrategy down 13 percent and 29 percent, respectively.
“The cryptocurrency bitcoin has been a great gauge of investors’ risk threshold for equities,” wrote JC O’Hara, chief market technician at MKM Partners. “Plenty of longs who bought in last year are still trapped, and thus we could easily see a pullback to 19,500. That would be a bearish read through for stocks.”
Investors are looking ahead to Wednesday when the Fed is expected to announce at least a half-point rate hike. The central bank has already raised rates twice this year, including a 50-basis-point increase in May in an effort to stave off the recent inflation surge.
Some economists believe the Fed could even raise rates by 0.75 percent this week following Friday’s CPI report.