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S&P 500 Ready for Bear Market Territory as Stock Futures Fall

The S&P 500 index was on track to open in bear market territory, while global stocks tumbled and bond yields rose as inflation concerns rattled investors around the world.

S&P 500 futures contracts fell 2.2% on Monday. A drop of more than 1.3% late in Monday’s trading session would push the index into bear market territory, defined as a 20% drop from recent highs. Contracts for the tech-focused Nasdaq-100, which entered the bear market in March, fell 2.8%. Dow Jones Industrial Average futures fell 2%.

The market has changed this year as investors assess the risk of rising inflation and the central bank’s plans for remove stimulus policies that has kept economies — and markets — afloat throughout the pandemic. This latest wave of volatility comes after data Friday showed US consumer prices rose 8.6% year-on-year in May, the fastest increase since 1981. The report alleges. many people have to reset their expectations for higher interest rates from the Federal Reserve.

Susannah Streeter, senior investment and market analyst at

Hargreaves Lansdown.

“The worry is that inflation is becoming too hot for central banks to handle and they will have to give economies a cold shower in the form of tighter policy.”

The Fed will begin its latest two-day policy meeting on Tuesday, and most investors believe the central bank will announce on Wednesday that it will raise its benchmark interest rate by half a percentage point. However, expectations that the Fed will be forced to move even more aggressively this year have increased since Friday’s inflation report.

On Monday, futures bets showed traders pegged to a roughly 78% probability that the Fed would raise rates by 2.5 percentage points by year-end, according to CME Group. That would equate to a half-percent rate hike at every Fed meeting this year.

On Friday, traders placed that odds at 50%, according to CME Group.

US technology shares, which have skyrocketed throughout the pandemic, were set to plummet on Monday.

Apple

shares fell 2.8% in pre-market trading, while

Amazon.com

shares depreciated 3.4%. Chip manufacturer

Nvidia

lost 4.3% in pre-market trading and

Tesla

fell 2.7%.

Meta . Platform,

Facebook’s parent company, lost 3%.

“This is what you call a bear market, where fear is going in and driving people out of the market and making people empty portfolio and capital investment”.

However, Mr. Morgan said developments over the next month or two could help ease inflationary pressures, such as a drop in gasoline demand after the summer and a slowdown in home-buying demand due to rising mortgage rates.

“The opening of China is also a big deal, as that will help ease supply chain constraints,” he said. Last week’s figures show China’s exports to the rest of the world Strong increase in May as Covid-19 restrictions are eased, adding to signs of economic recovery there.

In the American household budget, what is inflation? WSJ’s Jon Hilsenrath traces the origins of rising prices to find out why some industries are up more than others. Photo illustration: Laura Kammermann / WSJ

Expectations of higher interest rates were on display in the bond market as yields continued to rise after hitting their highest levels since November 2018. Yields on the benchmark 10-year US Treasury note rose 3.238% word 3.156% on Friday. Bond yields increase when prices fall.

Cryptocurrencies fall further on Monday after interest rate concerns ignite weekend sell-off. Bitcoin, the largest cryptocurrency, is trading at around $23,900, according to CoinDesk — down nearly 13% from 24 hours earlier. Ethereum has dropped 15.9% from the previous 24 hours to $1,228.

Foreign stock markets were mixed on concerns about tighter U.S. policy and a potential slowdown in growth in the world’s largest economy. The Stoxx Europe 600 continentwide index fell 2.1% while Britain’s FTSE 100 index fell 1.9%.

Delivery platforms are among the most bearish during the European session. Based in London

Deliveroo

down 13%, while that of Germany

Delivery hero

slip 5.6%.

“Their business is built on consumer sentiment and appetite,” said Ms Streeter of Hargreaves Lansdown. “If people get upset, they’ll walk to the grocery store instead of getting food delivered.”

Stock indexes in Asia were weaker, with Hong Kong’s Hang Seng, Japan’s Nikkei 225 and South Korea’s Kospi Composite all falling about 3% or more. In mainland China, the blue-chip CSI 300 index lost about 1.2%.

In the currency markets, the dollar rallied against a range of its peers with the ICE Dollar Index rising 0.6% to 104.73.

The possibility of an even wider interest rate differential between the US and Japan pushed the yen further down on Monday. Japan’s currency fell to a new low, weakening more than 135 to a dollar and trading at its lowest level since 1998.

A weak yen usually lifts profits for Japanese exporters, but shares of export companies including machinery and electronics makers fell on Monday on worries that a Fed hike interest rates will cool down the global economy.

Toyota Motor Corp.

shares closed 3.3% lower in Tokyo, while

Sony Corporation.

down 4.9%.

“The concern was so great that any expectations of benefit from the weak yen were blown away,” said Masahiro Ichikawa, strategist at Sumitomo Mitsui DS Asset Management.

Stock indexes in Asia weakened on Monday, with Japan’s Nikkei 225, South Korea’s Kospi Composite and Hong Kong’s Hang Seng all falling 2.9% or more.


Image:

Eugene Hoshiko / Associated Press

Present,

Bank of Japan

are trying to keep interest rates low, adding to the downward pressure on the yen. The Bank of Japan on Monday made its biggest daily fixed-rate Japanese government bond purchase since July 2018 to keep the 10-year benchmark yield at or below the level. ceiling of 0.25% of the bank.

Quentin Webb and Megumi Fujikawa contributed to this article.

Write to Chelsey Dulaney at chelsey.dulaney@wsj.com and Dave Sebastian at dave.sebastian@wsj.com

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