The Dow Jones Industrial Average on Monday became the latest of the major U.S. stock indices to fall in what is known as a bear market, as the market deepened its decline amid growing fears of a global recession. .
The blue chip index fell 1.1%, while the S&P 500 closed down 1% and the Nasdaq fell 0.6%, as the indices extended their losing streak to a fifth day.
Sterling fell to a record low against the dollar and investors continued to dump British government bonds angered by a sweeping tax cut plan announced in London last week.
Markets in Europe closed mostly lower. The head of the European Central Bank has warned that the economic outlook is “darkening” as high energy and food prices, fueled by the war in Ukraine, reduce consumers’ purchasing power. France, the EU’s second-largest economy, has forecast a substantial slowdown in economic growth next year.
In the US, stock indices have been losing ground, coming off their fifth weekly loss in six weeks.
“Yields are higher, the dollar is stronger and stocks are weak,” said Willie Delwiche, investment strategist at All Star Charts. “That’s been the theme, really all year, and it intensified a little bit last week and that’s playing out this week.”
The S&P 500 fell 38.19 points to 3,655.04. The Nasdaq fell 65 points to 10,802.92. The Dow Jones lost 329.60 points to close at 29,260.81. It is now 20.5% below its all-time high set on January 4. A drop of 20% or more from a recent peak is what Wall Street calls a bear market.
The losses were broad and included banks, health care companies and energy stocks. Bank of America fell 2.2%, Medtronic fell 1.6% and Marathon Oil slipped 3.7%.
Casino and resort operators were a bright spot following reports that the Macau gambling hub will loosen travel restrictions in November. Wynn Resorts jumped 12%.
Shares of smaller companies fell more than the broader market. The Russell 2000 fell 23.71 points, or 1.4%, to close at 1,655.88.
The latest sell-off to open the week comes amid a prolonged slide in major indices. The benchmark S&P 500 index is down more than 7% in September. Stocks have been hit by concerns about stubbornly high inflation and the risk that central banks could push economies into recession as they try to cool soaring prices on everything from food to clothing. Investors have been particularly focused on the Federal Reserve and its aggressive rate hikes.
“We’re starting to get a shift from fears about inflation and the Fed to global economic concerns,” said Mark Hackett, head of investment research at Nationwide. “We have reached a universal degree of pessimism.”
The Fed raised its benchmark rate, which affects many consumer and business loans, again last week and is now in a range of 3% to 3.25%. It was practically zero at the beginning of the year. The Fed also released a forecast suggesting its benchmark rate could be 4.4% by the end of the year, a full point higher than forecast in June.
The goal is to make borrowing more expensive and effectively cut spending, which would cool inflation. However, the US economy is already slowing and Wall Street is concerned that the Fed’s rate hikes will slow down the economy too much and trigger a recession. Higher interest rates hurt all kinds of investments, especially expensive tech stocks.
The 2-year Treasury yield, which tends to track expectations for Federal Reserve action, rose sharply to 4.32% from 4.21% on Friday. It is trading at its highest level since 2007. The 10-year Treasury yield, which influences mortgage rates, jumped from 3.69% to 3.89%.
The recent rise in the US dollar against other currencies is a cause for concern for many countries. It dents the profits of US companies doing business abroad and puts financial pressure on much of the developing world.
Companies are approaching the close of the third quarter and investors are preparing for the next round of earnings reports. That will give them a better idea of how companies are coping with persistent inflation.
Investors also have several economic reports available this week that will provide more detail on consumer spending, the labor market and the overall health of the US economy.
The latest consumer confidence report for September from The Conference Board is due to be released on Tuesday. The government is to release its weekly report on jobless benefits on Thursday, along with an updated report on second-quarter gross domestic product.
On Friday, the government will release another report on personal income and spending that will help provide more detail on where and how inflation is affecting consumer spending.
Business writer Yuri Kageyama contributed to this report from Tokyo.
This story has been updated to correct the closing number for the S&P 500. It is 3,655.04, not 3,665.04.