According to a report by the Wall Street Journal on June 13, the release of U.S. inflation data on June 10 made investors even more worried, leading to an intensification of the stock market's decline last week. At the same time, faced with the increasing possibility of the Federal Reserve significantly tightening monetary policy, investors have chosen to avoid risks across the board.
On June 13, the S&P 500 index fell 3.9%, with 495 of the 500 constituent stocks closing in the red. The decline sent the U.S. stock benchmark down more than 20% from its January record, putting it into a bear market for the first time since 2020.
As of the close on the 13th local time in the United States, the S&P 500 index fell 151.23 points, or 3.9%, to close at 3749.63 points. The Dow Jones index fell 876.05 points, or 2.8%, to close at 30516.74 points. The Nasdaq index, which is dominated by technology stocks, fell 530.80 points, or 4.7%, to close at 10809.23 points, down 33% from November.
The market's volatility this year has come as investors scramble to understand how quickly the Federal Reserve will raise interest rates to rein in high inflation. During the epidemic, business activities were suspended and unemployment increased. The Federal Reserve's lowest interest rates and other stimulus policies helped keep the economy and market functioning. Now, the Federal Reserve is trying to curb soaring prices by unwinding its loose monetary policy.
The latest inflation data showed that U.S. consumer prices rose 8.6% year-on-year in May, the fastest increase since 1981. The inflation data shocked markets, fueling concerns that tightening monetary policy could tip the economy into recession. In this regard, the Fed may be forced to take more aggressive measures.
“If inflation goes higher, the Fed will have no choice but to raise interest rates.” Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance, said, “The more the Fed raises interest rates, the more likely it is that it will continue to raise interest rates. The longer this goes on, the more likely we are to be in recession.”
Based on futures trading on June 13, traders saw a chance that the Fed would raise its benchmark short-term interest rate by at least 2.5 percentage points by the end of the year from the current range of 0.75% to 1%, according to CME Group. About 85%, compared with 50% a week ago.
"Inflation appears to be lasting longer than expected," said Kiran Ganesh, multi-asset strategist at UBS. "People are now starting to worry that the Fed is going to have to be more aggressive on interest rates.
U.S. Treasury yields soared on June 13 as investors worried that continued inflation could prompt the Federal Reserve to raise interest rates faster than expected. The benchmark 10-year U.S. Treasury bond yield rose to 3.371%, up from 3.156% on the 10th, the highest closing level since 2011 and the largest single-day rise since March 2020.
Todd Morgan, chairman of Bel Air Investment Advisors in Los Angeles, said: "This is called a bear market, and panic is approaching, forcing investors to get out, empty their portfolios, and then throw up their hands. .”
However, Morgan believes developments over the next month or two could help curb inflationary pressures, such as lower demand for gasoline after the summer and a slowdown in demand for housing as mortgage rates rise.
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