Stocks falter after sell-off pushes S&P 500 into bear market

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U.S. stocks slid further Tuesday, a day after intensifying inflation fears spurred a dizzying sell-off that shoved the S&P 500 into bear market territory.

The Federal Reserve’s policy meeting Tuesday and Wednesday remains center stage, as the central bank is expected to again raise interest rates in an effort to tamp down surging prices. The Fed had long been expected to raise rates by half a percentage point, but a JPMorgan Chase research note issued Monday raised speculation that the Fed could move even more aggressively and go with three-quarters of a percentage point, or more. The note suggested that a sense of urgency could be taking hold at the central bank.

“Investors look as if they increasingly fear the central bank will become more aggressive with the pace of interest rates to try and curb inflation, given May’s cost of living figures were higher than expected,” Russ Mould, investment director at AJ Bell, said in commentary Tuesday.

“A decision to raise rates by more than half a percentage point could cause chaos on the markets and put a bigger dent into investors’ portfolios than they’ve already seen this year.”

Most Americans expect inflation to get worse, Post-Schar School poll finds

The S&P 500, which plunged 3.9 percent Monday to slide into a bear market — defined as a 20 percent drop from a recent high — fell another 0.4 percent Tuesday, closing at 3,735.48, to mark its fifth-straight day of losses.

The tech-heavy Nasdaq notched a 0.02 percent gain to land at 10,828.35. The Dow Jones industrial average was down 0.5 percent to settle at 30,364.83.

The three indexes closed Tuesday’s session with deep deficits on the year: The S&P 500 has slumped 22 percent in 2022 and the Dow 17 percent. The Nasdaq, deep into its own bear market, has shed nearly a third of its value.

“Fears of stagflation have hit the highest level since 2008, while global economic growth optimism has sunk to a record low,” Ivan Feinseth, chief investment officer at Tigress Financial Partners, said Tuesday in commentary.

What is stagflation? Here’s why it matters and what you should know.

Cryptocurrencies continued their precipitous fall as investors headed for safer ground, with bitcoin plunging below $22,000, down 5.6 percent. By comparison, it was trading above $65,000 in November.

The broader world of crypto and tech faced more stinging employment news. Coinbase, the biggest cryptocurrency trading platform, announced Tuesday that it would slash its workforce by 18 percent — at least 1,000 positions by current head counts — as it prepares for another possible recession and “crypto winter,” according to chief executive Brian Armstrong. The company’s shares slumped 7 percent in early trading before clawing most of that back. The stock ended the day at $51.58, or 0.8 percent lower.

The announcement came a day after cryptocurrency bank Celsius said it would halt withdrawals by its nearly 2 million users — citing “extreme market conditions” and rattling crypto markets, underscoring fears that some of the sector’s largest companies are on shaky financial ground.

But Armstrong’s comments also echo those of JPMorgan Chase CEO Jamie Dimon, Tesla CEO Elon Musk and other executives who have been signaling caution about the state of the economy. More than 15,000 tech workers were laid off last month, according to data from Layoffs.fyi. It was the highest figure since the early days of the pandemic.

2022 has already delivered a nonstop storm of uncertainty for investors and companies, from a vexed supply chain to labor shortages, soaring prices and the vast fallout from the war in Ukraine. Now, the outlook is more challenging, dragging down even names that seemed unstoppable throughout much of the pandemic: Amazon’s shares are down nearly 40 percent for the year; Tesla, 44 percent; Meta, 52 percent; and Peloton, 73 percent. (Amazon founder Jeff Bezos owns The Washington Post.)

Inflation hit new peak in May amid high gas prices

In May, consumer prices shot up an additional 1 percent compared with April to a pandemic-era peak of 8.6 percent, according to data released Friday from the Bureau of Labor Statistics, as energy, housing and food prices drive up costs at the fastest pace in 40 years.

Wholesale prices are up 10.8 percent from a year ago, according to a fresh reading of the Producer Price Index on Tuesday, near a record annual pace as inflation puts pressure on every segment of the supply chain. Transportation and warehousing costs jumped 2.9 percent, suggesting supply chain pressures will continue to weigh on businesses and consumers.

Consumer spending is the primary engine of the U.S. economy, powering roughly 70 percent of the country’s gross domestic product. But evidence is mounting that households are being forced to cut back amid the surging prices; consumer sentiment plummeted 14 percent in May to a record low, according to the University of Michigan’s consumer sentiment index.

The national average for a gallon of gas surpassed $5.01 on Tuesday, another fresh high, according to data tracked by AAA. A year ago, the national average was $3.08.

Lauren Goodwin, an economist at New York Life Investments, said she projects inflation will peak this year as economic capacity improves and the Fed moves aggressively on interest rates. But “timing is everything when it comes to the economy and markets,” she warned in commentary Tuesday.

“High prices can impact household and business economic decisions, and an even-more-hawkish Fed can contribute to an economic slowdown,” Goodwin said. “If June and July inflation data do not improve — and in our view food, energy, and shelter prices are at real risk of staying high — then investors should expect more volatility across asset classes.”

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