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Market Snapshot: S&P 500 ends in a bear market, Dow drops almost 900 points as recession fears rise ahead of Wednesday’s Fed decision

U.S. stocks closed sharply lower on Monday, with the S&P 500 entering a bear market and Dow industrials tumbling almost 900 points, as financial markets continued to reel from a surprise acceleration in inflation just days ahead of a Federal Reserve interest-rate decision.

What happened

The Dow Jones Industrial Average

finished down 876.05 points, or 2.8%, at 30,516.74, after dropping as much as 1,019.07 points at its session low.

The S&P 500

ended 151.23 points lower, or 3.9%, at 3,749.63. The S&P 500’s close below 3,837.25 marks a more than 20% pullback from the index’s Jan. 3 record close, confirming a bear market for the large-cap benchmark.

The Nasdaq Composite

dropped 530.80 points, or 4.7%, to 10,809.23.

What drove markets

Stocks sold off sharply Monday on climbing volatility, as hot inflation data rattled markets ahead of the Federal Reserve’s mid-week policy decision. Friday’s data that showed the consumer-price index shooting to a fresh 40-year high of 8.6% year-over-year has caused investors to reassess how high the Fed will go in raising interest rates.

“The inflation data on Friday was clearly a game-changer and the market is reacting accordingly,” said Daniel Tenengauzer, head of markets strategy and insights for BNY Mellon. “Bond yields are higher and, as a result, equities are down because the Fed will need to react.”

Market Extra: BlackRock isn’t buying the dip as volatility climbs in sinking stock market

Like economists at Barclays and Jefferies, Tenengauzer said in a phone interview that he expects policy makers to lift the fed funds rate by 75 basis points on Wednesday. “Inflation has clearly come unanchored and officials need to build a new narrative,” given their median forecasts in March for the long-term fed funds rate to be at 2.4% and the 2022 year-end level to be at 1.9%, he said. The Fed’s main policy rate target currently sits between 0.75% and 1%.

“There’s definitely sentiment in the market that the Fed’s credibility is also being de-anchored as we speak,” Tenengauzer said via phone.

The dollar also jumped, with the ICE U.S. dollar index
which measures the currency against a basket of six major rivals, jumping 1% to trade near an almost 20-year high.

Concerns about monetary policy tightening aren’t limited to the U.S. Last week, the European Central Bank suggested it could follow up a quarter-point rate hike in July with a 50-basis point move in September, as the Bank of England also readies another expected rate hike this week.

The fallout has been stark in cryptocurrencies, with bitcoin

extending its weekend plunge to trade below $23,200. The crypto lending platform Celsius Network has suspended withdrawals and transfers. And the world’s largest cryptocurrency exchange, Binance, instituted a pause on withdrawals of bitcoin Monday morning, founder and CEO Changpeng Zao announced on Twitter.

Read: Bitcoin tumbles through $24,000 in crypto crash. This chart shows how much worse a selloff could get.

Also see: Dow tumbles toward record 3-day streak of 500-point declines

Companies in focus

Shares of Coinbase Global Inc.

finished lower by 11.4%, feeling a downdraft amid the broad weakness in cryptocurrencies.

Astra Space Inc.

shares closed down by 23.8% after the orbital launch services company disclosed that it failed to deliver a payload after launch.

Other assets

August gold futures

fell $43.70, or 2.3%, to settle at $1,831.80 an ounce, the lowest most-active contract finish since May 18, FactSet data show.

The Stoxx Europe 600

ended 2.4% lower, while London’s FTSE 100

shed 1.5%.

The Shanghai Composite

ended 0.9% lower, while the Hang Seng Index

tumbled 3.4% in Hong Kong and Japan’s Nikkei 225

dropped 3%.

Joy Wiltermuth and Steve Goldstein contributed to this article.

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