US stocks fell on Monday as investors digested last week’s report showing inflation in May rose at its level.
The S&P 500 plunged 151 points, or nearly 4%, to close at 3,750. A drop of more than 21% since its last peak in January has put the S&P index firmly in place..
Other benchmark indexes also fell sharply, with the Dow Jones Industrial Average down 876 points, or 2.8%, and the Nasdaq Composite down 4.7%.
On Friday, the S&P 500 sank 2.9%, posting its ninth week of losses in the last 10 days. The US government’s report that inflation accelerated to 8.6% in May, from 8.3% in the previous month, was taken to mean that the Federal Reserve will continue to raise interest rates, stymiing investors’ hopes of a cooling in inflation.
“Friday’s CPI report was too hot to handle in US stock markets,” analysts Piper Sandler said in a report. “The 40-year annual high inflation last month spoiled the narrative of peak inflation and triggered a wave of selling pressure across the board. risky assets.
Cryptocurrency prices also fell, with Bitcoin dropping to $23,981 – its lowest level since December 2020, according to Bloomberg.
“The short window of hope that opened in the back half of May as expectations for US inflation/Fed-tightening appeared to be peaking and China was reopening, shutting down violently, and investors back into a pit of despair after the analyst said. Adam Crisavoli, founder of Vital Knowledge, in a note: “Friday’s massive CPI and modest COVID setbacks in China.”
Mohamed El-Erian, chief economic adviser at Allianz, echoed concerns about rising inflation. “I think you have to be very modest about what we know about this inflation process. I’m afraid things are going to get worse, and we could get to 9% at this rate,” he said this weekend on CBS News. ” face the nation.
Violent inflation affects consumers. University of Michigan index Friday showed that consumer confidence fell to a 50-year low in early June. Average gas prices For the first time ever this weekend, according to AAA.
Americans usually drive more from the start on Memorial Day, so demand is high. Global oil prices are on the rise, in addition to sanctions against Russia, the main oil producer, for its war against Ukraine. And there are restrictions on refining capacity in the United States because some refineries have closed during the pandemic.
Federal Reserve officials are due to meet this week for their policy meeting, and investors expect them to raise interest rates by at least half a percentage point in an effort to rein in inflation. Some Wall Street analysts believe that the pace of monetary tightening is likely to push the economy into recession.
“With recent inflation data providing ‘clear and convincing evidence’ that inflationary pressures will abate without stronger policy action, the challenge for monetary policy makers of steering inflation on target without reducing demand to the point of causing recession has taken hold,” he said. Analysts at Deutsche Bank to investors in a research note.
“In our view, achieving such a ‘soft landing’ appears highly unlikely given the degree of monetary tightening needed to combat the seemingly endless flow of inflationary shocks and rising inflation expectations,” they added.
Chris Beauchamp in IGSimilar skepticism was expressed in a research note.
“It’s still too early to say a recession is definitely coming in the US, but it seems very difficult to avoid a ‘hard landing’ at this point given the way inflation is still rising,” said the chief market analyst.
Mark Heffel, chief investment officer for global wealth management at UBS, has a more moderate view. He still expects inflation to subside later this year, noting that prices for products such as smartphones and televisions have begun to fall. He notes that so-called core inflation, which excludes volatile food and energy prices, fell slightly in May even as the broader CPI rose.
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