The S&P 500 was on track to open in bear market territory, while global stocks tumbled and bond yields jumped as fears over inflation rattled investors around the world.
Futures for the S&P 500 were down 2.4% on Monday, a drop that would push the index’s loss since its record close in January above the 20% threshold that defines a bear market if the decline holds through the close. Contracts for the technology-focused Nasdaq-100, which entered bear market territory in March, were down 3%. Futures for the Dow Jones Industrial Average fell 2%.
Markets have swung this year as investors assessed the risks of surging inflation and central bankers’ plans for unwinding stimulus policies that kept economies—and markets—afloat throughout the pandemic. This latest bout of volatility came after data Friday showed U.S. consumer prices rose 8.6% year-over-year in May, the fastest such rise since 1981. The report forced many to reset expectations for higher interest rates from the Federal Reserve.
Friday’s figures “essentially show that inflation hasn’t peaked yet in the U.S.,” said Tai Hui, chief market strategist for Asia at J.P. Morgan Asset Management in Hong Kong.
The Fed will begin its latest two-day policy meeting Tuesday, and most investors believe that the central bank will announce Wednesday it is raising its benchmark interest rate by half a percentage point. But expectations that the Fed will be forced to move even more aggressively this year have risen since Friday’s inflation report.
On Monday, futures bets showed traders assigned a roughly 78% probability that the Fed will raise interest rates by 2.5 percentage points by the end of the year, according to CME Group. That would equate to a half-percentage rate increase at every Fed meeting this year.
On Friday, traders placed the odds of that at 50%, according to CME Group.
U.S. tech stocks, which soared throughout the pandemic, were set for big declines Monday.
shares were down 2.9% in premarket trading, while
shares lost 3.4%. Chip maker
lost 4.5% in premarket trading and
was down 3%.
“This is what you call a bear market where fear is taking place and pushing people out of the market and having people empty up portfolios and capitulate,” said
the chairman of Los Angeles-based Bel Air Investment Advisors.
Still, Mr. Morgan said developments in the next month or two could help damp inflationary pressures, such as lower gasoline demand after the summer and slowing demand for houses due to rising mortgage rates.
“China opening up is a big deal, too,” he said, as that would help ease supply-chain constraints. Figures last week showed Chinese exports to the rest of the world surged in May as Covid-19 restrictions eased, adding to signs of economic recovery there.
Expectations of higher rates were on display in the bond market as yields continued to climb after hitting the highest level since November 2018. The yield on the benchmark 10-year U.S. Treasury note stood at 3.241%. Bond yields rise as prices fall.
Cryptocurrencies slid further Monday after interest-rate fears sparked a weekend selloff. Bitcoin, the biggest cryptocurrency, traded at about $24,361, according to CoinDesk—a drop of more than 11% from 24 hours earlier. Ethereum was down 16.5% from 24 hours earlier to $1,225.
Stock markets abroad sold off on fears of tighter U.S. policy. The pan-continental Stoxx Europe 600 fell 2.2% while the U.K.’s FTSE 100 index fell 1.8%
Stock indexes in Asia weakened, with Hong Kong’s Hang Seng, Japan’s Nikkei 225 and South Korea’s Kospi Composite all retreating by around 3% or more. In mainland China, the blue-chip CSI 300 index lost about 1.2%.
In currency markets, the dollar gained against a range of its peers with the ICE Dollar Index up 0.5% to 104.67.
The possibility of an even wider interest-rate differential between the U.S. and Japan pushed the yen down further on Monday. The Japanese currency fell to a new multidecade low, weakening beyond 135 per dollar to trade at its weakest since 1998.
A weak yen typically lifts the profits of Japanese exporters, but shares in exporting companies including electronics and machinery makers were down Monday over concerns that the Fed’s rate increases would cool down the global economy.
shares closed 3.3% lower in Tokyo, while
“The concern is so big that any expectations for benefits from a weak yen were blown away,” said Masahiro Ichikawa, a strategist at Sumitomo Mitsui DS Asset Management.
Mr. Ichikawa said the yen’s slide could be arrested if the Fed is forced to raise interest rates more quickly, fueling concerns about the global economic outlook. That in turn could boost traditional haven currencies, including the U.S. dollar, the yen and Swiss franc, he said.
For now, the
is trying to keep interest rates low, adding to downward pressure on the yen. The Japanese central bank on Monday made its biggest daily fixed-rate purchase of Japanese government bonds since July 2018 to keep the benchmark 10-year yield at or below the bank’s 0.25% ceiling.
—Megumi Fujikawa contributed to this article.
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