Monday, 4 Jul 2022

Monday market meltdown: S&P 500 enters bear market, 10-year yield hits 11-year high

U.S. stocks sank into a bear market on Monday, with traders betting a fresh decades-high print on inflation will force the Federal Reserve to get even more aggressive than previously anticipated to help ease rising prices.

The Nasdaq Composite fell 4.7% by market close to end at 10,809.23, its lowest level since September 2020. The S&P 500 dropped 3.9% to end at 3,749.81. This set the index more than 20% below its recent record high from January, meaning it had officially fallen into a bear market.

Treasury yields rose across the curve, with the benchmark 10-year yield jumping to top 3.34% and reach its highest level since 2011.

Cryptocurrencies also slid after digital currencies lender Celsius Network said Sunday it was pausing all withdrawals, swaps and transfers between accounts on its platform “due to extreme market conditions,” according to a statement.

Bitcoin prices (BTC-USD) fell by more than 17% to below $23,000 at session lows, or the lowest since December 2020, in the wake of the announcement, while Ethereum prices (ETH-USD) tumbled below $1,200. Crypto-related stocks including Coinbase (COIN) and MicroStrategy Incorporated (MSTR) also came under renewed selling pressure.

For the broader markets, investors nervously looked ahead the Federal Reserve’s latest policy-setting meeting later this week, with a rate decision set for Wednesday. Up until Friday’s hotter-than-expected monthly Consumer Price Index, traders widely believed the meeting would set the stage for another half-point rate hike by the central bank, bringing the target range for interest rates between 1.25% and 1.50%. However, after last week’s data showed an unexpected pick-up in inflation to a fresh 40-year high of 8.6% in May, investors have raised their bets on an even bigger move by the Fed.

Fed funds futures, which help track traders’ predictions for where the Fed’s target interest rate band will land, shifted quickly after Friday’s report and showed increased bets on an even more pronounced 75 basis point hike. As of Monday, Fed funds futures priced in an about 25% probability of three-quarter point hike and an around 75% probability of a 50 basis point hike, according to CME Group data. As recently as mid-last week, investors were pricing in a more than 90% probability that the Fed would opt for a 50 basis point rate hike.

“There is very little in the details of [Friday’s CPI] report to suggest that inflationary pressures are easing,” Michael Pearce, senior U.S. economist for Capital Economics, wrote in a note Friday. “The surge in energy prices this month means that headline inflation will remain close to 8.6% in June. Together with the continued strength of the latest activity data, that bolsters the argument of the hawks at the Fed to continue the series of 50 bp [basis point] rate hikes into September and beyond, or even to step up the size of rate hikes at coming meetings.”

Such a super-sized rate hike would add more pressure to already-volatile stocks by further raising the cost of borrowing for businesses. But at the same time, equity markets have also remained in turmoil as investors have had to weigh whether inflation left to run at current decades-high rates will push the economy into a deeper downturn. Already, at least one survey has shown consumer sentiment plunged to its lowest level since at least the 1970s in the face of rising prices. And given all these uncertainties, the Fed may well choose to continue down its previously telegraphed path to implement only half-point hikes in the near-term, some economists said.

4:05 p.m. ET: Stocks close in bear market as S&P 500 sinks 22% from Jan. high

Here were the main moves in markets as of 4:05 p.m. ET:

  • S&P 500 (^GSPC): -151.23 (-3.88%) to 3,749.63

  • Dow (^DJI): -876.05 (-2.79%) to 30,516.74

  • Nasdaq (^IXIC): -530.80 (-4.68%) to 10,809.23

  • Crude (CL=F): -$0.08 (-0.07%) to $120.59 a barrel

  • Gold (GC=F): -$50.80 (-2.71%) to $1,824.70 per ounce

  • 10-year Treasury (^TNX): +21 bps to yield 3.3660%

9:35 a.m. ET: Stocks open lower, S&P 500 trades in bear market territory

Here were the main moves in markets as of 9:35 a.m. ET:

  • S&P 500 (^GSPC): -88.32 (-2.26%) to 3,812.54

  • Dow (^DJI): -531.94 (-1.69%) to 30,860.85

  • Nasdaq (^IXIC): -301.10 (-2.66%) to 11,038.92

  • Crude (CL=F): -$0.98 (-0.81%) to $119.69 a barrel

  • Gold (GC=F): -$36.90 (-1.97%) to $1,838.60 per ounce

  • 10-year Treasury (^TNX): +12.4 bps to yield 3.2800%

7:14 a.m. ET: Stock futures slide ahead of the open

Here were the main moves in markets before the opening bell:

  • S&P 500 futures (ES=F): -86 points (-2.21%) to 3,813.00

  • Dow futures (YM=F): -539 points (-1.72%) to 30,849.00

  • Nasdaq futures (NQ=F): -340.25 points (-2.87%) to 11,499.75

  • Crude (CL=F): -$1.87 (-1.55%) to $118.80 a barrel

  • Gold (GC=F): -$15.70 (-0.84%) to $1,859.80 per ounce

  • 10-year Treasury (^TNX): +9.6 bps to yield 3.253%

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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