US stocks had another losing session on Monday, with stocks set for more turbulence this week as fears of excessive Fed tightening and one mad dash in the forex markets rattle investors.
The S&P 500 fell 1%, while the Dow Jones Industrial Average lost more than 300 points, or about 1.1%. The tech-heavy Nasdaq Composite fell 0.6% after erasing a gain of more than 1% earlier in the trading day. Meanwhile, the CBOE Volatility Index (^VIX), which measures Wall Street’s expectations for short-term market volatility, rose above 31, its highest level since June 17.
Movements come after a brutal sale spurred by growing expectations that central bank policymakers could trigger a recession by raising interest rates to tackle decades-high inflation.
On Friday, the Dow Jones Industrial Average hit a 2022 low after posting a 4% loss for the week. The benchmark S&P 500 lost 4.6% over the same period, lurching near its June 16 low of 3,666.77 as it closed at 3,693.23. And the tech-heavy Nasdaq Composite posted a weekly loss of around 5.1%.
The nervous action was prevalent in other pockets of the market. On the bond side, the rate-sensitive 2-year Treasury jumped above 4.28%, a new 15-year high, while the 10-year Treasury yield rose above 3.82%, the highest since April 2010.
In commodities, Brent crude oil futures fell below $85 a barrel, the lowest since January, while in currency markets, the dollar index jumped to its highest level since May 2002.
Volatility across the Atlantic was also in focus to start the week after the rollercoaster ride in sterling. The the currency plunged about 4% to around $1.03, hitting an all-time low against the US dollar, after Britain’s new government announced plans to issue its biggest tax cut in 50 years and increase spending. The pound found its way back up to $1.07.
“The concern is that not only will borrowing rise to exorbitant levels, but the fires of inflation will be further fanned by this tax giveaway, which gives the highest earners the greatest tax relief,” Hargreaves Lansdown Senior Investment and Markets Analyst Susannah Streeter said in a note.
Back in the US, some Wall Street strategists expect a recession to be the base case scenario for the Federal Reserve as it mounts an aggressive rate hike campaign in a bid to restore stability prices – especially after President Jerome Powell continues warned of the economic “pain” in a speech last week.
Atlanta Federal Reserve Chairman Raphael Bostic, however, continues to believe he and his colleagues can dampen inflation without significantly hurting the labor market, according to his remarks in a Sunday interview on CBS’ “Face the Nation”.
“I think we’re going to do everything we can at the Federal Reserve to avoid deep, deep pain,” Bostic said. “We’re still creating a lot of jobs on a monthly basis, so I actually think the economy has some capacity to absorb our actions.”
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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