NEW YORK (AP) — The Dow Jones Industrial Average fell more than 1,000 points on Monday as financial markets slumped ahead of the Federal Reserve’s inflation-fighting measures and fretted over the possibility of conflict between Russia and Ukraine.
Stocks extended their three-week decline on Wall Street and put the benchmark S&P 500 index on course for a so-called correction – a decline of 10% or more from its most recent peak. The price of oil and bitcoin fell, as did the yield on 10-year Treasury bills, a sign of investor concern about the economy.
Stocks have fallen sharply so far this year as the market braces for the Fed to raise interest rates in an attempt to rein in inflation, which is at its highest level in nearly four decades. The central bank has kept short-term rates close to zero since the pandemic hit the global economy in 2020.
The S&P 500 fell 3.7% to 4,235.69 as of 12:30 p.m. EST and is now down about 11.1% from the closing high it hit on January 3. A close of 4,316.90 or lower will result in a correction. The Dow Jones fell 2.9% to 33,236.25 and the Nasdaq 4.3%.
Tech stocks again led the broader market decline as investors diverted money away from more expensive stocks in anticipation of rising interest rates. Higher rates make stocks of high-flying technology companies and other expensive growth stocks relatively less attractive.
Apple fell 3.3% and Microsoft 4.8%. The technology sector is by far the largest in the S&P 500 and is now down more than 15% year-to-date.
The sale extended to cryptocurrencies. As of noon, Bitcoin was trading at $35,347, down 2.6%. Bitcoin traded above $68,000 in November.
The market is awaiting news from Federal Reserve policymakers after their last meeting ended on Wednesday. Some economists have expressed concern that the Fed is already acting too late to tackle high inflation.
Other economists say they fear the Fed is acting too aggressively. They argue that many rate hikes would risk provoking a recession and would in no way slow inflation. From this perspective, high prices primarily reflect tangled supply chains that Fed rate hikes are powerless to remedy.
When the Fed raises its short-term rate, it tends to make borrowing more expensive for consumers and businesses, which slows down the economy in an effort to reduce inflation. This could reduce corporate earnings, which tend to dictate stock prices over the long term.
The Fed’s benchmark short-term interest rate is currently in a range of 0% to 0.25%. Investors now see a nearly 65% chance that the Fed will hike the rate four times by the end of the year, up from 35% a month ago, according to CME Group’s Fed Watch tool.
Wall Street anticipates the first interest rate hike in March. In a note to clients this weekend, Goldman Sachs forecast four rate hikes this year, but said the Fed could be forced to raise rates five times or more if supply chain issues and wage growth keep inflation high.
Investors are also watching developments in Ukraine. Tensions soared Monday between Russia and the West over fears that Moscow is planning to invade Ukraine, with NATO outlining potential deployments of troops and ships.
The European STOXX 600 index closed down 3.6% on worries about Fed tightening and worries about the situation around Ukraine. The Russian ruble also fell after US President Joe Biden indicated that in the event of a Russian invasion, the United States could block Russian banks from accessing dollars or impose other sanctions.
In US markets, healthcare stocks also fell sharply on Monday, along with a wide range of retailers. Target fell 1.9% and Pfizer lost 4.4%.
Bond yields fell slightly. The 10-year Treasury yield fell to 1.72% from 1.74% on Friday evening. Falling yields have weighed on banks, which rely on higher yields to charge more lucrative interest on loans. Bank of America fell 4.4%.
Inflation is putting pressure on businesses and consumers as demand for goods continues to outstrip supply. Companies have warned that supply chain issues and rising raw material costs could strain their finances. Retailers, food producers and others have raised the prices of goods to try to offset the impact.
Rising costs are raising fears that consumers will begin to cut spending due to continued pressure on their wallets.
Investors are watching the latest round of corporate earnings, in part to gauge how companies are handling rising prices and what they plan to do as inflation continues to pressure operations.
On Tuesday, American Express, Johnson & Johnson and Microsoft publish their results. Boeing and Tesla release their results on Wednesday. McDonald’s, Southwest Airlines and Apple release their results on Thursday.
Wall Street also has several key economic reports to look forward to this week. Investors will get more data on how consumers are feeling with Tuesday’s release of the Conference Board’s Consumer Confidence Index for January. The Commerce Department releases its fourth-quarter gross domestic product report on Thursday and its December personal income and spending report on Friday.
Associated Press economics writer Christopher Rugaber and reporters Stan Choe and David McHugh contributed.
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