December 9, 2022

Dow sank sharply as Wall Street worried about the central bank’s crackdown

New York
CNN Business

U.S. stocks fell in the bear market on Monday morning as Wall Street investors grew more anxious about the possibility of getting even tougher drugs from the central bank to get out of inflation.


It fell 600 points, or 1.8%, to recover slightly above 800 points from morning trade. The Nasdaq is down 3.4%.

The broader S&P 500 fell 2.6%. That index is now 20% higher than its all-time high in January, which puts it in bear-market territory.

Inflation and Fears of a recession Somewhat relaxed at the end of May, and the stock reclaimed some land. But Friday’s pathetic consumer price index report showed that US inflation was significantly higher than economists expected last month, according to the Federal Reserve. Inflation-control efforts More difficult.

After raising rates by half a point in May – a move the central bank has not taken since 2000 – President Jerome Powell further promised until the central bank is satisfied that inflation is under control. At that point, the central bank will resume steady quarterly rate hikes, he said.

But since May’s hottest inflation report, Wall Street has been on the rise Call for drastic action From the central bank to keep the price under control. Jeffries joins Barclays on Monday in predicting that the Federal Reserve will raise rates Three-quarters of a pointAn action central bank Not taken since 1994.

“After almost a week of suffocation for the US CBI report for May, investors were out of excitement as inflation came in higher than expected,” Sam Stowell, CFRA’s chief investment strategist, told clients Monday morning.

Stowell said the risk of big hikes is dragging markets on Monday.

Investors fear about two consequences, none of which are good: higher rates indicate larger borrowing costs for businesses, which can eat away at their bottom line. The central bank’s more enthusiastic move could accidentally push the U.S. economy into a recession, especially if businesses begin to lay off workers and the hot housing market crashes.

There is no indication that the work and home markets are in danger of collapsing, although both have cooled somewhat.

In an interview CNN’s Fareed Zakaria Sunday, Former central bank chairman Ben Bernanke said the US recession is possible. But Bernanke said he was optimistic that Powell and the central bank would achieve what is known as a soft landing, which would cool the central bank’s economy to control inflation without reducing inflation to the point of entering a recession.

“Economists are very bad at predicting a recession, but I think there’s a good chance for the central bank – a fair chance – that there will be no recession to achieve what Powell calls a” soft landing “or a very mild recession to reduce inflation.” Bernanke said.

Analysts moved beyond the “buy the dip” mood on Monday, signaling that they did not see markets recovering quickly.

“In our view, estimates are not very cheap based on rising interest rates and a weaker earnings outlook,” officials at BlackRock wrote in a note on Monday. “The high path of policy rates justifies low stock prices. In addition, margin pressures risk returns.”

Strategists said BlackRock would remain neutral in shares for the next six to 12 months.

If the S&P 500 closes in the bear market, the bull run that began on March 23, 2020 would have ended. But, because of the tricky way these things are measured, the bear market will start on January 3, when the S&P 500 reaches its all-time high.

That is, the latest bull market has lasted more than 21 months – a record low, says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. In the last century, bull markets lasted an average of 60 months.

According to Silverplot, the period from Pear 19 to March 23, 2020, the shortest bull market, lasted more than a month.

Shares After a while the bear fell on the market On May 20, a late-day rally recovered the market from closing below that level for the first time since the early days of the epidemic.

The tech-savvy Nasdaq has been in the bear market for some time, now 32% lower than its all-time high in November 2021. The Dow is still a short distance from the bear market. This is 15% less than the all-time rise reached on the last day of 2021.

– Nicole Goodkind of CNN Business contributed to this report