Wall Street tumbled to its lowest point in more than a year on Monday as renewed worries about China’s economy piled on top of markets already battered by rising interest rates.
The S&P 500 was down 2.2% in morning trade after posting its fifth straight losing streak, its longest such streak in more than a decade. He joined a global swoon for markets on Monday. Not only have stocks fallen across Europe and much of Asia, but everything from old-economy crude oil to new-economy bitcoin.
The Dow Jones Industrial Average was down 487 points, or 1.5%, at 32,412 as of 10:30 a.m. EST, and the Nasdaq composite was down 3.1%. Monday’s sharp decline leaves the S&P 500, Wall Street’s main measure of health, down nearly 16% from its record high set earlier this year.
Most of the damage this year is the result of the Federal Reserve’s aggressive decision not to do everything in its power to support financial markets and the economy. The central bank has already pulled its main short-term interest rate from its all-time high of zero, where it has sat for most of the pandemic. Last week, he signaled additional increases of double the usual amount that could be achieved in the coming months, in hopes of stamping out the high inflation sweeping the economy.
Deliberate measures will slow the economy by making borrowing more expensive. The risk is that the Fed could cause a recession if it goes too far or too quickly. In the meantime, higher rates discourage investors from paying very high prices for investments, as investors can get more than before by holding ultra-safe Treasuries instead.
This has helped cause bitcoin to fall almost 28% since the start of April, for example. It fell 3.4% on Monday.
Concerns about the world’s second-largest economy added to the gloom on Monday. Analysts cited comments over the weekend from a Chinese official warning of a dire jobs situation as the country hopes to halt the spread of COVID-19.
Shanghai authorities have tightened restrictions again, with at least one citizen saying it seemed endless, just as the city emerged from a month-long strict lockdown after an outbreak.
The fear is that China’s tough anti-COVID policies will further disrupt global trade and global supply chains, while dampening its economy, which for years has been a key driver of global growth.
In the past, Wall Street has been able to hold steady despite similar pressures due to the strong earnings growth companies have been producing.
But this past season of earnings releases from major US corporations has generated less enthusiasm. Overall, companies are reporting stronger-than-expected earnings for the last quarter, as is usually the case. But the discouraging signs for future growth have been many.
The number of companies citing “weak demand” in their conference calls following earnings reports reached its highest level since the second quarter of 2020, strategist Savita Subramanian wrote in a BofA Global Research report. Tech profits are also lagging behind, she said.
The technology sector is the largest in the S&P 500 by market value, giving it additional leverage for market moves. Many tech-focused companies have seen their profits soar during the pandemic as people seek new ways to work and play while cooped up at home. But their slowing earnings growth makes their shares vulnerable after their prices soared so high on expectations of continued gains.
The higher interest rates put in place by the Fed are also hitting their stock prices hard, as they are considered to be among the most expensive in the market. The Nasdaq composite’s loss of around 24% for 2022 so far is much stronger than that of other indices.
The 10-year Treasury yield hit its highest level since 2018 as inflation and expectations for Fed action rose. It moderated a little on Monday, falling to 3.11% from 3.12% on Friday evening.
In Asian stock markets, the Japanese Nikkei 225 fell 2.5% and the South Korean Kospi lost 1.3%. Shares in Shanghai edged up 0.1%.
In Europe, the French CAC 40 fell by 1.7% and the German DAX by 1.2%. London’s FTSE 100 fell 1.5%.
In addition to concerns about inflation and coronavirus restrictions, the war in Ukraine remains a major cause of uncertainty. More than 60 people are believed to have been killed after a Russian bomb razed a school used as a shelter, Ukrainian officials said. Moscow forces pushed their attack on the defenders inside the Mariupol steelworks in an apparent race to capture the city ahead of Russia’s Victory Day holiday on Monday.
Even the energy sector, star of recent weeks, was under pressure on Monday. Benchmark U.S. crude fell 4.1% to $105.28 a barrel, although it is still up more than 40% this year. Brent crude, the international standard, fell 3.6% to $108.40 a barrel.
AP Business Writer Yuri Kageyama contributed.