US equities fell into bear market territory on Monday, down 20 percent from their January peak, a sign of growing pessimism about the outlook for the economy.
Markets around the world collapsed as higher-than-expected inflation and lower-than-expected economic growth undermined the outlook for interest rates and corporate earnings. Stocks in Asia and Europe fell, investors dumped government bonds, oil prices fell and cryptocurrencies collapsed.
The S&P 500 fell 3 percent in afternoon trading as a wave of sales continued. The S&P 500 briefly dived into bear market territory last month before recovering to close just above it. Markets have been jittery ever since, with the S&P 500 recording its worst weekly loss since January last week.
The US benchmark stock index is now “within a bad day of a bear market, and stock futures suggest we haven’t seen all of the negative sentiment,” analysts at ING wrote in a note to investors Monday morning. The S&P 500 has fallen in nine of the past ten weeks.
A report on Friday showed a rise in inflation in the United States, shaking markets as investors worried that the Federal Reserve may need to raise interest rates higher and faster than expected to curb rising prices, a move that could affect the US economy.
Global investors have sold stocks, bonds and other assets as inflation is soaring in many countries, supply chains continue to grumble and forecasts for economic growth are revised downwards.
Stock markets in Asia closed deep in the red, with Japan’s benchmark Nikkei 225 index falling 3 percent and South Korea’s Kospi plummeting 3.5 percent. In Hong Kong, shares fell 3.4 percent, while an index for China’s largest companies listed in Hong Kong fell 3.6 percent. The Japanese yen fell to a 24-year low against the US dollar.
Fears in the region mounted on Monday after officials in Beijing and Shanghai reintroduced social distancing measures after another round of massive testing over the weekend. China’s economic growth has been hit by the country’s “zero Covid” pandemic policy, which left much of the country under some form of lockdown for months earlier this year.
In Europe, the Stoxx 600 index fell 2.4 percent, reaching its lowest level since early 2021. The UK’s FTSE 100 fell 1.5 percent after news that the country’s economy contracted unexpectedly in April, dropping 0.3 percent compared to March. Economists had expected slight growth growth.
European bond prices fell sharply as traders priced in a series of rate hikes by the European Central Bank in response to high inflation in the eurozone. German and Italian government bond yields, which are inversely proportional to prices, reached multi-year highs, implying a sharp rise in borrowing costs.
More on the turmoil in the market today:
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The cryptocurrency market melted again as the price of Bitcoin plummeted to its lowest point since 2020, wiping out years of investment. Bitcoin fell to about $23,000, its lowest value since December 2020. READ MORE →
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Investors are bracing for the economic fallout as central banks, including the Federal Reserve, try to curb rapid inflation. The Fed had indicated that it will probably raise interest rates by half a percentage point this week and by another half a percentage point in July. But investors have now begun to take an even bigger step towards the September meeting. READ MORE →
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The last bear market was in early 2020, when the coronavirus spread, leading to widespread global shutdowns. It was also the shortest ever. Shares lost a third of their value in 33 days that year. But the recovery was relatively quick, with markets making up for losses in six months. READ MORE →
