Dow down over 400 points as stocks extend slump

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By William Watts and Mike Murphy

U.S. stocks fell sharply in early trade Monday, building on technical weakness following last week’s volatile price action as investors fretted over the threat of stagflation as the Federal Reserve tightens policy in a bid to rein in surging price pressures.

What’s happening

The Dow and S&P 500 each slipped 0.2% last week, while the technology-heavy Nasdaq fell 1.5%. The weekly declines came after wild swings for major indexes, surging on Wednesday and falling sharply on Thursday.

Cryptocurrencies fell over the weekend as well, with bitcoin dropping below the $35,000 level, down nearly half from its record high set in November.

What’s driving markets

Stocks slumped to end the week after Fed Chairman Jerome Powell said the central bank was not considering a 75-basis-point rate hike, leading some to question whether the Fed is doing enough to control inflation. The Dow tumbled more than 1,000 points Thursday, marking its worst day in five years, a day after jumping 900 points for its best day since 2020.

Read:Will Fed go too far? Dow’s violent swings put investors on lookout for recession signals

“Circumstances have locked the Federal Reserve and U.S. inflation in a race to see who can be the most hawkish, but the Fed always seems to be in catch-up mode,” Stephen Innes, managing partner at SPI Asset Management said in a note Sunday night.

“Questioning the ability of central banks to lean against inflation effectively remains a significant source of angst as investors weigh greater near-term policy certainty versus medium-term inflation uncertainty,” he said. “The longer this goes on, it will drive even higher investor anxiety levels and pressure stocks lower.”

A surge in yields is a negative for stocks, particularly tech and other growth shares whose valuations are based on profit and cash flow far into the future. Rising yield on risk-free Treasurys cuts the present value of those future flows.

Analysts said weak Chinese trade data contributed to pressure across risky assets. Government customs data showed exports rose 3.7% year over year in April, down sharply from growth of 15.7% in March, news reports said. Imports edged up just 0.7%, reflecting tepid demand.

The release of the April jobs report on Friday did little to move the dial ahead of Wednesday’s release of the consumer price index.

“Overall, the release of the U.S. employment report for April failed to excite traders as despite the nonfarm payrolls figure remaining relatively at the same levels as in March and not dropping as the market expected, the unemployment rate failed to tick down and remained unchanged,” said Peter Iosif, senior research analyst at Noteris.

Need to Know:’Drive down the middle of the road.’ How this fund manager advises investors navigate a tough investing climate right now

-William Watts

Companies in focus

What other assets are doing

 

(END) Dow Jones Newswires

05-09-22 0954ET

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