The U.S. stock market entered bear-market territory Monday as runaway inflation, elevated gas prices, and rising interest rates by the Federal Reserve leave Americans struggling to deal with the economic pressures.
The stock market experienced another sharp decline in value Monday as the S&P 500 slumped 3.9%, bringing the index to a new yearly low. Other indexes felt the pain too, with the Dow Jones Industrial Average down 2.8%, while the Nasdaq fell nearly 4.7%.
According to Sam Stovall, chief investment strategist at CFRA, “U.S. equity markets are reacting negatively to last week’s hotter-than-expected reading for inflation.”
The latest inflation report showed the annual inflation rate in the U.S. rose to 8.6%, with consumer prices rising at their fastest pace in over 40 years. The May report shows energy prices rising the most since September of 2005.
The sell-off comes as Fed Chairman Jerome Powell is expected to raise interest rates Wednesday. Powell has vowed to raise rates as high as needed in order to fight inflation.
Julia Coronado, former Fed economist and president of MacroPolicy Perspectives is calling for a three-quarter-point move at this week’s meeting.
“It’s going to be a tricky meeting messaging-wise,” she said. “It’s not a rosy outlook. They don’t have any easy choices to make.”
Fueled by increasing worries of inflation and the loss of confidence in the U.S. markets, many investors, institutions, and hedge funds have entered a risk-off attitude and begun reducing their exposure to many speculative assets like stocks and crypto.
The Fed is expected to continue its monetary policy of balance sheet reduction as it fights to bring inflation under control and guide the economy to a so-called soft landing.
