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The S&P 500 Bear-Market is ready for the territory in the fall of the Stock Futures

The S&P 500 was on the verge of opening in bear market territory, while stocks around the world fell and bond yields rose as fears of inflation shook investors around the world.

The S&P 500 futures fell 2.4% on Monday. A drop of more than 1.3% at the close of trading on Monday would push the index into bear market territory, defined as a 20% loss from its last high. Contracts for the Nasdaq-100 technology, which entered the bear market in March, fell by 3.1%. Dow Jones Industrial Average futures fell 1.9%.

Markets have shifted this year, with investors risking inflationary risks and plans by banks to eliminate stimulus policies that kept the economy and markets afloat throughout the pandemic. This latest wave of volatility in Friday saw US consumer prices rise by 8.6% year-on-year in May, the fastest rise since 1981. The report forced many to re-establish expectations of higher Federal Reserve interest rates.

“Exceeding expectations has further weakened investors’ nerves and shown how difficult it is to try to cover inflation, ”said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown..

“He is concerned that central banks are managing to keep inflation too hot and will have to dose the economy with cold water as a tighter policy.”

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

On Monday, futures bets showed that traders were assigned a 78% probability that the Fed would raise interest rates by 2.5 percentage points by the end of the year, according to the CME Group. That would be a half-percent increase at every Fed meeting this year.

On Friday, traders put the probability of that at 50%, according to the CME Group.

“It looks like inflation will last longer than expected,” said Kiran Ganesh, a multi-asset strategist at UBS..

“People have now begun to fear that the Fed will have to go further or faster in terms of interest rates.”

U.S. technology stocks, which rose all over the pandemic, were expected to fall sharply on Monday. Apple shares fell 3% in pre-market trading, while Amazon.com shares lost 4.3%. Nvidia chip maker lost 3.9% in pre-market trade and Tesla lost 2.7%. Meta platforms,

The main Facebook company lost 3.1%.

“That’s what you call the fear that’s going on and throwing people out of the market and emptying and capitulating people’s wallets,” said Todd Morgan, president of Bel Air Investment Advisors in Los Angeles.

However, Mr Morgan said developments over the next month or two could help reduce inflationary pressures, such as lower demand for petrol after the summer and slowing demand in households due to rising mortgage rates.

“Opening up China is also a big thing,” he said, because that would help ease the constraints on the supply chain. Last week’s figures showed that Chinese exports rose to the world in May when Covid-19 cuts eased, adding to signs of economic recovery there.

Where is the hardest hit on inflation in American home budgets? Jon Hilsenrath of the WSJ examines the roots of rising prices to see why some sectors have risen much more than others. Photo illustration: Laura Kammermann / WSJ

Expectations of higher rates in the bond market emerged as yields continued to rise after reaching their highest level since November 2018. The benchmark 10-year U.S. Treasury bill yield rose to 3.273%. 3156% on Friday. Bond yields rise as prices fall.

A number of cryptocurrencies rallied on Monday after fears of interest rates sparked a weekend sell-off. Bitcoin, the largest cryptocurrency, sold for about $ 23,523, according to CoinDesk, down nearly 14% from 24 hours earlier. Ethereum fell 19% from $ 2490 24 hours earlier.

Foreign stock markets were shaken by fears of tighter U.S. policy and a slowdown in the growth potential of the world’s largest economy. The Stoxx Europe 600 pan-continental fell 2.3% and the UK FTSE 100 fell 1.6%.

“The U.S. picture is probably the best in terms of growth,” UBS’s Ganesh said. “The picture of eurozone growth is not good and it will be close to whether they avoid a recession.”

Shipping platforms were one of the biggest losers in the European trading session. London’s Deliveroo fell 14% and Germany’s Delivery Hero fell 6.3%.

“Their businesses are built based on consumer sentiment and hunger,” said Hargreaves Lansdown’s Streeter. “If people feel a little bit they will go to the grocery store instead of delivering the food.”

Asian stock indices weakened, with Hong Kong’s Hang Seng, Japan’s Nikkei 225 and South Korea’s Kospi Composite falling about 3% or more. In mainland China, the blue-chip CSI 300 index lost about 1.2%.

In the currency markets, the dollar rose 0.7% to 104.83 with the ICE Dollar Index, which was up against its peers. The index is up 9.2% this year. High US interest rates typically increase the value of the dollar.

The possibility of an even wider interest rate gap between the US and Japan fell further by the yen on Monday. The Japanese currency fell to a new multi-decade low, weakening beyond $ 135 per dollar to trade at its weakest since 1998.

A weak yen typically raises the profits of Japanese exporters, but shares of companies that export, including electronics and machinery manufacturers fell on Monday, amid concerns that a Fed rate hike would cool the global economy. Toyota Motor Corp..

shares closed 3.3% lower in Tokyo, and Sony Group Corp.

It fell by 4.9%.

“The concern is so great that expectations of a weak yen’s yield have been dashed,” said Masahiro Ichikawa, a strategist at Sumitomo Mitsui DS Asset Management.

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


Photo:

Eugene Hoshiko / Associated Press

For now, the Bank of Japan is trying to keep interest rates low, adding to the downward pressure on the yen. The Central Bank of Japan on Monday made the largest daily fixed rate purchase of Japanese government bonds since July 2018, keeping the benchmark 10-year yield at or below the bank’s 0.25% ceiling.

Quentin Webb and Megumi Fujikawa contributed to this article.

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

Corrections and amplifications
Kiran Ganesh is a multi-asset strategist at UBS. An earlier version of this article referred to Mr. Ganesh in the second reference to Mr. Kiran. (Corrected June 13)

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The S&P 500 Bear-Market is ready for the territory in the fall of the Stock Futures

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