Stocks extend sell-off as Fed fears, currency turmoil persist

U.S. stocks had yet another losing session Monday, as the S&P 500 hit a new 2022 closing low and the Dow Jones Industrial Average’s decline put the index officially into a bear market. Equities were poised for more turbulence this week as fears of excessive Fed tightening and a wild run in currency markets rattle investors.

The S&P 500 barreled down 1%, while the Dow shed more than 300 points, or about 1.1%. The technology-heavy Nasdaq Composite sank 0.6%, erasing a gain of more than 1% earlier in the trading day. Meanwhile, the CBOE Volatility Index (^VIX), which measures Wall Street’s expectations for short-term market volatility, rose above 31, its highest level since June 17.

The moves come after a brutal bout of selling spurred by growing expectations that central bank policymakers may trigger a recession as they raise interest rates to fight decades-high inflation.

On Friday, the Dow Jones Industrial Average hit a 2022 low after recording a 4% loss for the week. The benchmark S&P 500 shed 4.6% over the same period, teetering near its June 16 low of 3,666.77 as it closed at 3,693.23. And the technology-heavy Nasdaq Composite posted a weekly loss of roughly 5.1%.

Skittish action was prevalent across other pockets of the market. On the bond side, the rate-sensitive 2-year Treasury note surged above 4.28%, a fresh 15-year high, while the 10-year Treasury yield topped 3.82%, the highest since April 2010.

In commodities, Brent crude oil futures plummeted below $85 per barrel, the lowest since January, while in currency markets, the dollar index jumped to its highest level since May 2002.

Volatility across the Atlantic was also in focus to start the week after roller coaster action by the British pound. The currency plunged roughly 4% to around $1.03, hitting an all-time low against the U.S. dollar, after Britain’s new government announced plans to issue its biggest tax cut in 50 years and boost spending. The Bank of England issued a statement saying it was watching markets “very closely” amid swift swings in asset prices. The pound found its footing later in the day, climbing back to $1.07.

Story continues

“The worry is that not only will borrowing balloon to eye-watering levels, but that the fires of inflation will be fanned further by this tax giveaway, which offers higher earners the bigger tax break,” Hargreaves Lansdown Senior Investment and Markets Analyst Susannah Streeter said in a note.

Back in the U.S., some Wall Street strategists are expecting that a recession is the Federal Reserve’s base case scenario as it proceeds with an aggressive rate hiking campaign in efforts to restore price stability – particularly after Chair Jerome Powell continuously warned of economic “pain” in a speech last week.

Atlanta Federal Reserve President Raphael Bostic, however, continues to believe he and his colleagues can mitigate inflation without substantially harming the labor market, according to his remarks in a Sunday interview on CBS’s “Face the Nation.”

“I do think that we’re going to do all that we can at the Federal Reserve to avoid deep, deep pain,” Bostic said. “We’re still creating lots of jobs on a monthly basis, and so I actually think that there is some ability for the economy to absorb our actions.”

—

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

Click here for the latest trending stock tickers of the Yahoo Finance platform

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app for Apple or Android

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube