Dow plunges 900 points, S&P enters bear market as inflation fears mount

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Inflation jumps again as Americans feel pain at the pumps.

02:12

NEW YORK – Stocks in the United States plunged on Monday as investors digested a report last week showing inflation in May jumped to its fastest pace in four decades.

The S&P 500 fell 151 points, or nearly 4%, to close at 3,750. The more than 21% drop since its most recent high in January puts the S&P firmly in a bear market.

Other benchmarks also fell sharply, with the Dow Jones Industrial Average losing 876 points, or 2.8%, and the Nasdaq Composite dropping 4.7%.

On Friday, the S&P 500 fell 2.9%, locking in its ninth losing week in the past 10. The US government’s report that inflation accelerated to 8.6% in May, from 8.3% the previous month, has been interpreted to mean that the Federal Reserve will continue to raise interest rates, wiping out investors’ hopes of curbing inflation.

“Friday’s CPI report was too hot for US equity markets to handle. Last month’s 40-year high annual inflation marred the peak inflation narrative and triggered a wave of selling pressure on risk assets,” Piper Sandler analysts said in a report.

Cryptocurrency prices also fell, with bitcoin slipping to $23,981 — its lowest since December 2020, according to Bloomberg.

“The brief window of hope that opened in the second half of May as it looked like US inflation/Fed tightening expectations were peaking and China was reopening closed sharply, and investors are back to wallowing in a hole of desperation after Friday’s huge CPI and China’s modest COVID setbacks,” said analyst Adam Crisafulli, founder of Vital Knowledge, in a note.


El-Erian says inflation could reach 9%

08:59

Allianz chief economic adviser Mohamed El-Erian echoed concerns about accelerating inflation. “I think we have to be very modest about what we know about this inflation process. And I’m afraid it will get even worse, we could well get to 9% at this rate,” he said. said this weekend on UKTN News. ‘Facing the Nation.

Pump inflation

Ferocious inflation weighs on consumers. An index from the University of Michigan showed on Friday that consumer confidence fell to a 50-year low in early June. Average gas price jumped above $5 a gallon for the first time this weekend, according to AAA.

Americans generally drive more starting on Memorial Day, so demand is up. World oil prices are rising, made worse by sanctions against Russia, a major oil producer, over its war on Ukraine. And there are limits to refining capacity in the United States as some refineries have closed during the pandemic.

Federal Reserve officials are due to meet this week for their policy meeting, and investors expect them to raise interest rates by at least half a percentage point in a bid to contain the inflation. Some Wall Street analysts believe the pace of monetary tightening is likely to tip the economy into a recession.

“With recent inflation data providing no ‘clear and convincing evidence’ that inflationary pressures will recede without stronger policy action, the challenge for monetary policymakers to bring inflation back to target without lowering demand at the point of triggering a recession has become much more difficult,” Deutsche Bank analysts told investors in a research note.

“In our view, achieving such a ‘soft landing’ seems highly unlikely given the degree of monetary tightening needed to combat the seemingly endless stream of inflationary shocks and rising inflation expectations,” they said. they added.

Chris Beauchamp at IG expressed similar doubts in a research note.

“It’s still too early to say that a recession is definitely approaching in the United States, but a ‘hard landing’ looks very hard to avoid at this point given the way inflation continues to rise,” the official said. chief market analyst.

Mark Haefele, chief investment officer of global wealth management at UBS, has a more benign view. He still expects inflation to come down later this year, noting that the price of products like smartphones and TVs has started to come down. He notes that so-called core inflation, which excludes volatile food and energy prices, fell slightly in May even as the broader consumer price index rose.

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