S&P 500 slips into a bear market as US stocks plunge on fears of a big rate hike after brutal inflation reading

A trader works on the floor of the New York Stock ExchangeAndrew Burton/Getty Images

  • The S&P 500 opened in bear market territory Monday amid a broad sell-off across markets.

  • Investors are bracing for the potential for a larger rate hike than expected after a tough inflation reading.

  • Cryptocurrencies cratered, with bitcoin falling under $24,000, 63% below its record high seen last year.

US stocks dropped Monday, with a broad sell-off putting the S&P 500 in bear-market territory — 20% down from its most recent high — as investors anticipate a big rate hike from the Federal Reserve this week after last Friday’s grim inflation reading.

Stocks sold off with the S&P 500 opening 2.4% lower. The Nasdaq Composite fell nearly 3% and the Dow Jones Industrial Index dropped by more than 600 points.

In cryptocurrency markets, major tokens began selling off over the weekend, with bitcoin on Monday piling up additional losses to sink below $24,000. The total crypto market cap is under $1 trillion for the first time since February 2021.

Investors are reacting to the May Consumer Price Index reading released on Friday which showed inflation rising at the highest rate in 41 years. The reading has caused a revision upward of many rate hike forecasts, with some observers now expecting an increase of 75 basis points this week. The expectation before Friday’s CPI report was for the central bank to hike by 50 basis points.

In a Financial Times poll, nearly 70% of economists said they expect the US to tumble into a recession as the Fed moves to combat inflation. Respondents largely expect the downturn to be officially declared in the first half of 2023.

Here’s where US indexes stood as the market opened 9:30 a.m. on Monday: 

“Big Short” investor Michael Burry warned that inflation is set to surge even higher, and that more pressure will mount on the housing market.

“Transitory, no. Peak, no. To the moon? If you mean a cold dark place,”Burry said in a since-deleted tweet.

Wharton professor Jeremy Siegel, for his part, said that even as hot inflation rocks the stock market, the index has probably already priced in a “mild recession,” so “we’re closer to the lows than the highs.”

Meanwhile, bitcoin tumbled to an 18-month low as investors flee from riskier assets. It’s now about 63% below last year’s record high of $69,000.

Crypto lender Celsius paused all account withdrawals and transfers amid the crypto sell off Monday. The company said the action was “for the benefit of our entire community in order to stabilize liquidity and operations.”

MicroStrategy plunged 26% Monday, as the bitcoin meltdown dragged the crypto market cap below $1 trillion. The company, led by crypto-bull Michael Saylor, faces a margin call if bitcoin falls to $21,000.

Overseas, the yen dropped to a 24-year low against the dollar as investors bet the Bank of Japan will stick with ultra-low rates.

Oil slipped, with West Texas Intermediate down 1.51%% to $118.81 a barrel. Brent crude, the international benchmark, moved down 1.37% to $120.34 a barrel.

Gold edged lower 1.47% to 1,847.20 per ounce. The 10-year Treasury yield rose 10.6 basis points to 3.263%.

Bitcoin fell 14.39% to $23,553.85.

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