[New York Stock Market] Plunge on Inflation and Tightening Fears... S&P 500 Enters Bear Market

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Seulgina Cho] Major indices on the U.S. New York stock market all plunged sharply on the 13th (local time) amid ongoing aftershocks from high inflation data ahead of this week's Federal Open Market Committee (FOMC) meeting. The S&P 500 index, centered on large-cap stocks, dropped nearly 4%, closing in a technical bear market more than 20% below its peak.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 30,516.74, down 876.05 points (2.79%) from the previous session. The S&P 500 index fell 151.23 points (3.88%) to 3,749.63, and the tech-heavy Nasdaq index ended the day at 10,809.23, down 530.80 points (4.68%). The small-cap focused Russell 2000 index also closed lower at 1,714.59, down 85.69 points (4.76%).

The S&P 500 index fell about 21% from its peak recorded in January, re-entering a technical bear market. This is the first bear market (based on closing prices) since March 2020, right after the pandemic began.

By sector, all major sectors of the S&P 500 declined. Weakness was especially notable in energy, consumer discretionary, IT, and materials stocks. Boeing (-8.77%), Salesforce (-6.96%), and American Express (-5.26%) all closed sharply lower, dragging the Dow down nearly 3%.

Interest rate-sensitive tech stocks also showed declines. Tesla fell 7.10% from the previous close. Netflix and Nvidia each slid more than 7%. Meta closed down 6.44%. Leading travel stocks such as Carnival (-10.32%) and Norwegian Cruise Line (-12.23%) dropped double digits. Delta Air Lines and United Airlines fell 8.29% and 10.06%, respectively.

This followed the U.S. May Consumer Price Index (CPI) inflation rate hitting 8.6%, the highest in about 41 years, fueling concerns that the Federal Reserve's tightening measures will intensify. The Fed's aggressive tightening to curb inflation is expected to trigger a recession, sharply freezing investor sentiment.

Jack Ablin, founding partner of Cresset Capital, said, "With interest rate hikes and economic uncertainty, valuations are being questioned, and right now there is nothing."

In the New York bond market, Treasury yields surged. The U.S. 10-year yield briefly rose to 3.44% during the session before easing. The 2-year yield also jumped, and at one point during the session, the 2-year yield exceeded the 10-year yield, causing a yield curve inversion for the first time since early April. Typically, a yield curve inversion is interpreted as a signal of an upcoming recession.

The Fed is expected to raise the benchmark interest rate by 0.5 percentage points as initially announced at the FOMC meeting on June 14-15. However, some analysts suggest that given the recent inflation data showing stronger-than-expected price pressures, the possibility of a 0.75 percentage point "giant step" rate hike should also be considered.

U.S. consumers' inflation expectations for the next year hit a new all-time high again. The New York Federal Reserve Bank announced that its May consumer outlook survey showed expected inflation over the next year at 6.6%.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices a 71.6% chance that the Fed will raise rates by 0.5 percentage points at this meeting, down significantly from 96.9% a week ago. Meanwhile, the probability of a 0.75 percentage point hike rose from 3.1% to 28.6%.

Investors were said to have had no safe haven on the day. The sharp stock market drop also dealt a direct blow to the cryptocurrency market. Bitcoin fell 17%, dropping below $23,000, its lowest level since December 2020. According to CoinMarketCap, the total cryptocurrency market capitalization fell below $1 trillion on Monday for the first time since February 2021. Gold and palladium also plunged as the dollar strengthened amid Fed tightening expectations. Gold futures closed at $1,824, down 2.74% from the previous session.

Experts warn of further declines in the New York stock market. Typically, from June, the market enters the so-called "June Swoon" as Wall Street's summer vacation season begins, leading to sluggish market performance.

Oil prices rose slightly. On the New York Mercantile Exchange, July West Texas Intermediate (WTI) crude oil closed at $120.93 per barrel, up 26 cents (0.22%) from the previous session. Despite increased lockdown concerns due to a cluster infection at a club in Beijing, China, supply shortages and inflation worries continued to exert upward pressure on prices.

This content was produced with the assistance of AI translation services.