S&P 500 sinks into bear-market territory as recession fears pound US stocks

theguardian.com:

Fears about a possible recession pounded stock markets worldwide on Monday, and Wall Street’s S&P 500 tumbled into the maw of what’s known as a bear market after sinking more than 20% below its record set early this year.

The S&P 500 dropped 3.8% in the first chance for investors to trade after getting the weekend to reflect on the stunning news that inflation is getting worse, not better. The Dow Jones was down 879 points, or 2.8%, at 30,513, as of 11.08am ET, and the Nasdaq composite was 4.5% lower.

The center of Wall Street’s focus was again on the Federal Reserve, which is scrambling to get inflation under control. Its main method is to raise interest rates in order to slow the economy, a blunt tool that risks a recession if used too aggressively.

Some traders are even speculating the Fed on Wednesday may raise its key short-term interest rate by three-quarters of a percentage point. That’s triple the usual amount and something the Fed hasn’t done since 1994. Traders now see a 34% probability of such a mega-hike, up from just 3% a week ago, according to CME Group.

No one thinks the Fed will stop there, with markets bracing for a continued series of bigger-than-usual hikes. Those would come on top of some already discouraging signals about the economy and corporate profits, including a record-low preliminary reading on consumer sentiment that was soured by high gasoline prices.

It’s all a sharp turnaround from earlier in the pandemic, when central banks worldwide slashed rates to record lows and made other moves that propped up prices for stocks and other investments in hopes of juicing the economy.

Such expectations are also sending US bond yields to their highest levels in years. The two-year Treasury yield shot to 3.23%