The Dow Jones Industrial Average became the latest of major U.S. stock indexes to fall into what is known as a bear market on Monday as the market deepened its slump amid growing fears of a global recession.
The blue chip index fell 1.1%, while the S&P 500 closed down 1% and the Nasdaq fell 0.6% as indices extended their losing streak to a fifth day .
The pound fell to an all-time low against the dollar and investors continued to dump UK government bonds, unhappy with the sweeping tax cut package announced in London last week.
Markets in Europe mostly closed lower. The head of the European Central Bank has warned that the economic outlook is “darkening” as high energy and food prices pushed up by war in Ukraine sap consumers’ purchasing power. France, the EU’s second largest economy, forecasts a substantial slowdown in economic growth next year.
In the United States, stock indices lost ground, posting their fifth weekly loss in six weeks.
“Yields are higher, the dollar is stronger and stocks are weak,” said Willie Delwiche, investment strategist at All Star Charts. “That’s been the theme, really all year, and escalated a bit in the last week and it’s playing out this week.”
The S&P 500 fell 38.19 points to 3,655.04. The Nasdaq fell 65 points to 10,802.92. The Dow fell 329.60 points to close at 29,260.81. It is now 20.5% below its all-time high reached on January 4. A decline of 20% or more from a recent high is what Wall Street calls a bear market.
Losses were significant and included banks, healthcare companies and energy stocks. Bank of America fell 2.2%, Medtronic 1.6% and Marathon Oil 3.7%.
Casino and resort operators have been a beacon of hope following reports that the Macau Gaming Center will ease travel restrictions in November. Wynn Resorts jumped 12%.
Small company stocks fell more than the broader market. The Russell 2000 fell 23.71 points, or 1.4%, to close at 1,655.88.
The latest bout of selling to open the week comes amid an extended slump in major indices. The benchmark S&P 500 index is down more than 7% in September. Stocks were weighed down by worries about stubbornly high inflation and the risk that central banks could push economies into a recession as they try to cool high prices for everything from food to clothes. Investors were particularly focused on the Federal Reserve and its aggressive interest rate hikes.
“We’re starting to move from fears about inflation and the Fed to global economic concerns,” said Mark Hackett, head of investment research at Nationwide. “We have reached a universal degree of pessimism.”
The Fed raised its benchmark rate, which affects many consumer and business loans, again last week and it is now in a range of 3% to 3.25%. It was almost nil at the start of the year. The Fed also released a forecast suggesting that its benchmark rate could be 4.4% by the end of the year, one point higher than expected in June.
The goal is to make borrowing more expensive and effectively reduce spending, which would curb inflation. However, the US economy is already slowing and Wall Street fears that the Fed’s rate hikes will put the brakes on the economy too hard and cause a recession. Higher interest rates have hurt all kinds of investments, especially expensive tech stocks.
The 2-year Treasury yield, which tends to track Federal Reserve action expectations, rose significantly to 4.32% from 4.21% Friday night. It is trading at its highest level since 2007. The 10-year Treasury yield, which influences mortgage rates, jumped from 3.69% to 3.89%.
The recent appreciation of the US dollar against other currencies is of concern to many countries. This reduces the profits of American companies with operations abroad and puts financial pressure on much of the developing world.
Companies are approaching the end of the third quarter and investors are preparing for the next round of earnings reports. This will give them a better idea of how companies are handling persistent inflation.
Investors also have several economic reports available for this week that will provide more detail on consumer spending, the labor market and the broader health of the US economy.
The latest report on consumer confidence, for September, from the business group The Conference Board will be released on Tuesday. The government will release its weekly report on unemployment benefits on Thursday, along with an updated report on gross domestic product for the second quarter.
On Friday, the government will release another personal income and spending report that will help provide more detail on where and how inflation is hurting consumer spending.
Business writer Yuri Kageyama contributed to this report from Tokyo.
This story has been updated to correct the S&P 500 closing number. It’s 3,655.04, not 3,665.04.
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