The Dow ended the day with a loss of over 640 points, or 1.9%. The S&P 500 and Nasdaq fell 2.1% and 2.6% respectively.
All 30 Dow stocks were lower and only 25 of the stocks in the blue chip S&P 500 index closed higher on Monday.
Shares also slumped Friday as the market broke a four-week winning streak. Markets recovered in July and August after a brutal first half of 2022. But the pendulum may be returning to pessimism.
Worries are mounting that the Fed isn’t done with its super-large rate hikes yet. In both June and July, the Fed raised interest rates by three-quarters of a percentage point, or 75 basis points.
But after the most recent data on consumer and producer prices showed that inflation rates cooled somewhat last month, investors began to hope that the Fed would raise interest rates by just half a point in September.
The thinking was that inflation was declining and that the economy would slow down. However, the labor market remains strong and retail sales have held up reasonably well despite inflation.
That has led more market observers to predict that the Fed may remain aggressive with rate hikes for the foreseeable future. The probability of another 75 basis point increase versus a half point increase is now seen as about 50-50.
“Market expectations for what the Fed will do has a track record of flipping based on economic data,” Lindsey Bell, chief money and markets strategist for Ally Invest, said in a report Monday. “As long as the Fed is in the driver’s seat, volatility is likely to remain high and the market will remain reactionary.”
Stocks could be volatile all week as investors wait for Fed Chair Jerome Powell to deliver a highly anticipated speech at the Kansas City Fed’s annual Jackson Hole symposium on Friday. In addition, the Fed’s next interest rate decision is not until September 21. So there’s a lot of economic data ahead, including the jobs report and inflation data for August.
“This is more like a bull rally in a bear market,” Oktay Kavrak, director of product strategy at Leverage Shares, said of what has happened to stocks in recent weeks. “Recession is still a base case and inflation remains stubbornly high. This could be one of those years where the market remains choppy.”
As a result, investors are clearly on the run from riskier assets. Meme stocks, like AMC (AMC), Bed Bath & More (BBBY) and GameStop (GME), were all in the red again on Monday after significant declines at the end of last week. Bitcoin and other cryptocurrencies also fell Monday and have all plummeted in the past week.