The Dow loses more than 600 points as investors worry about the Fed’s next decision

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Wall Street stumbled on Monday, extending last week’s selloff, as investors resumed trepidation over inflation and the pace of interest rate increases ahead of the Federal Reserve’s annual economic symposium.

The Dow Jones Industrial Average ended the day at 33,063, down 643 points, or 1.9%. The broader S&P 500 lost 2.1% to close just below 4,138, while the tech-heavy Nasdaq erased 2.5% to end trading just above 12,381.

The losses follow Friday’s pullback, which halted the summer rally that had given the S&P 500 four straight weeks of growth and lifted it from its mid-June lows. This is when the index entered a bear market, meaning it had lost 20% of its value since its last high. Whether the recent losses are temporary or represent a change in direction remains to be seen.

“While some bulls may be hoping the summer rally means the bear market is behind us, it’s important to keep in mind that bear market rallies like this are not uncommon,” Larkin said. .

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Monday’s market jitters come as Fed officials prepare to gather in Jackson Hole, Wyo., for their annual economic symposium. Investors are keenly interested in what Chairman Jerome H. Powell might have to say about inflation on Friday and any signs that the central bank might change course in its efforts to fight it.

The rally is separate from the central bank’s regular policy-setting meetings, where the Federal Open Market Committee assesses economic conditions and determines monetary policy, including whether to change interest rates.

The stock market’s steady sell-off for much of 2022 has been closely tied to the Fed’s campaign to rein in runaway inflation by raising interest rates. Higher rates compress spending, which theoretically prevents prices from rising as quickly. The Fed has raised rates four times this year to that end, and three more increases are planned. But the central bank also runs the risk of raising rates too quickly and tipping the economy into a recession.

The most recent stock market rally was largely due to the slowdown in inflation, which moderated to 8.5% last month on the back of falling gasoline and energy prices. But Powell said the central bank should see lasting evidence that prices are under control before changing course.

Investors now realize the Fed still has a long way to go before bringing inflation back to its 2% target, said MissionSquare Retirement chief investment officer Wayne Wicker. This suggests that more market volatility may be on the way.

“I think we’re about to enter a turbulent period here,” Brenda Vingiello, chief investment officer of Sand Hill Global Advisors, told CNBC. “We need more data to give us a better indication of how far the Fed needs to go.”

On Monday, riskier investments like meme stocks and cryptocurrencies were hammered, leading to heavy losses for these speculative assets.

Bed Bath & Beyond continued its descent, slipping a further 16.2% to $9.24. The homewares chain has been in freefall since two major shareholders liquidated their holdings last week, erasing most of the August rally that took it above $25 per share. AMC, another favorite of small investors, fell 42% on Monday after the owner of Regal Cinemas warned of a possible bankruptcy filing, underscoring the industry’s struggle to attract moviegoers after the pandemic. Cryptocurrencies also lost value, with bitcoin falling 2.3% on Monday.

Ford shares fell 5% after the automaker announced plans to cut 3,000 jobs as part of its transition to electric vehicles.

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Meanwhile, European markets are also hesitant about whether policymakers can control inflation without slowing growth too much.

In Europe too, central banks are holding back monetary policy to keep inflation under control, although they are raising rates at a slower pace than their US counterparts. The British central bank recently carried out its largest rate hike since 1995, raising its primary interest rate by 0.5%. The European Union raised rates by a similar margin.

Analysts believe they are acting more cautiously, in part because the continent faces an energy crisis linked to Russia’s invasion of Ukraine and its status as a major supplier of natural gas. The chances of a recession are greater in Europe than in the United States, said LPL Financial chief economist Jeffrey Roach.

The Pan-European Stoxx 600 lost almost 1% on Monday. Germany’s Dax index lost 1.2% and Britain’s FTSE 100 fell 0.2%.

China, meanwhile, faces a different challenge. The country’s struggling economy has seen a marked decline in economic growth, in part due to its “zero covid” policy. A heatwave enveloping much of the country is also forcing a slowdown in industrial production there, said LPL Financial chief global strategist Quincy Crosby.

The country’s central bank is now in a position to lower interest rates to stimulate economic growth.

Oil prices were largely flat on Monday, with West Texas Intermediate crude trading just above $90 a barrel and Brent crude, the global benchmark, trading below $97.

Robert D. Coleman