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Markets tumble worldwide, bear market growls on Wall Street – Press Telegram

By STAN CHOE

NEW YORK (AP) – Fears of a possible recession are hitting markets on Monday, and the Wall Street S&P 500 has fallen into the mouth of the so-called bear market after falling more than 20% below its record earlier this year .

The S&P 500 fell 2.7% at the first opportunity for investors to trade after the weekend reflected on the startling news that inflation is getting worse, not better. The Dow Jones Industrial Average was down 591 points, or 1.9%, to 30,792 at 1:58 p.m. Eastern Time, and the Nasdaq was down 3.4%.

The center of Wall Street’s focus was again on the Federal Reserve, which is struggling to control inflation. Its main method is to raise interest rates to slow the economy, a powerful tool that runs the risk of recession if used too aggressively.

With the Fed seemingly forced to be more aggressive, prices have fallen for everything from bonds to bitcoins, from New York to New Zealand, and the sharpest falls have affected the biggest winners of the previous era of low rates.

“The best thing people can do is not panic and not sell at the bottom,” said Randy Frederick, general manager of trading and derivatives at the Schwab Center for Financial Research, “and we’re probably not at the bottom.”

Some economists even speculate that the Fed may raise its short-term interest rate by three-quarters of a percentage point. That’s three times the usual and something the Fed hasn’t done since 1994. Traders now see a 28% chance of such an increase, up from 3% a week ago, according to CME Group.

No one thinks the Fed is going to stop there, with markets preparing for a continued series of larger-than-usual rises. These would add to some already discouraging signs about the economy and corporate profits, including a low-brand preliminary reading of consumer sentiment that has been fueled by high gasoline prices.

Everything has changed abruptly since the beginning of the pandemic, when central banks around the world have cut rates to historic lows and made other moves that have raised stock prices and other investments in hopes of boosting the economy.

Such expectations are also pushing U.S. bond yields to their highest levels in more than a decade. The two-year Treasury yield shot up 3.23% from 3.06% in the last hour of Friday after reaching its highest level since 2007, according to Tradeweb. This year it has multiplied by more than four.

The 10-year yield jumped to 3.34% from 3.15%, and the highest level will make mortgages and many other types of home and business loans more expensive. This year it has more than doubled and reached its highest level since 2011.

The gap between two- and ten-year yields has also narrowed, a sign of declining optimism about the economy in the bond market. If the two-year yield exceeds the ten-year yield, some investors see this as a sign of an impending recession.

The pain for the markets was worldwide as investors prepared for more aggressive moves by a band of central banks.

In Asia, rates fell by at least 3% in Seoul, Tokyo and Hong Kong. Actions there have also been affected by concerns about COVID-19 infections in China, which could push authorities to resume tough restrictions and slow down business.

In Europe, the German DAX lost 2.4% and the French CAC 40 2.7%.

Some of the biggest successes have been for cryptocurrencies, which erupted at the start of the pandemic when lower interest rates encouraged some investors to accumulate riskier investments. According to Coindesk, Bitcoin fell more than 17% from the previous day and dropped to $ 23,222. It returned to where it was at the end of 2020 and down from a peak of $ 68,990 at the end of last year.

On Wall Street, the S&P 500 was more than 21% below its record earlier this year. If the day ends more than 20% below that maximum, it would enter what investors call a bear market.

Bears hibernate, so bears represent a market that is in decline, said Sam Stovall, CFRA’s chief investment strategist. Instead, Wall Street’s nickname for a rising stock market is a bullish market, because bulls charge, Stovall said.

The last bear market was not long ago, in 2020, but it was an unusually short one that lasted only a month. The S&P 500 approached a bearish market last month, briefly dropping more than 20% below its record, but not ending a day below that threshold.

This would also be the first bear market for many novice investors to start trading stocks for the first time since the start of the pandemic, a period in which stocks seemed to be just rising. That is, they did so until inflation proved to be worse than a “transient” problem as initially described.

Michael Wilson, a Morgan Stanley strategist who has been among the most pessimistic voices on Wall Street, maintains his view that the S&P 500 could fall to 3,400 even if the US economy avoids a recession over the next year.

That would mark another drop of about 10% from the current level, and Wilson said it reflects his view that Wall Street earnings forecasts are still too optimistic, among other things.

With rising price tags in stores aggravating the sentiment of shoppers, even those with higher incomes, Wilson said in a report that “the next shoe to fall is a cycle of discounts,” as companies try to clean up accumulated inventories.

These moves would reduce its profitability and the stock price moves up and down largely for two things: how much money the company is generating and how much it is willing to pay an investor for it.

The Fed’s moves have a large impact on this second half because higher rates make investors less willing to pay high prices for risky investments.

Deutsche Bank economists said they expect the Fed to raise rates higher than usual on Wednesday, again in July, then again in September and a fourth time in November. Just a week ago, ahead of Friday’s call for an inflation report, Wall Street discussed whether the Fed could pause interest rate hikes in September.

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AP business writers Damian J. Troise and Elaine Kurtenbach contributed.

Markets tumble worldwide, bear market growls on Wall Street – Press Telegram Source link Markets tumble worldwide, bear market growls on Wall Street – Press Telegram

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