Dow: Stocks tumble on fears of another big Fed rate hike

The Dow ended the day with a loss of more than 640 points, or 1.9%. The S&P500 and Nasdaq down 2.1% and 2.6% respectively.

All 30 stocks in the Dow were down and only 25 of the stocks in the blue chip S&P 500 index traded higher on Monday.

Shares also fell on Friday as the market ended a four-week winning streak. Markets rebounded in July and August after a brutal first half of 2022. But the pendulum could swing back to pessimism.

Concerns are growing that the Fed is not yet done with its oversized rate hikes. The Fed raised rates by three-quarters of a percentage point, or 75 basis points, in both June and July.
But according to the most recent data on consumer and producer pricewhich showed that the inflation rate had cooled a bit last month, investors had begun to hope that the Fed might raise rates by only half a point in September.
The idea was that inflation was coming down and the economy might slow down. However, the the job market remains strong and retail sales held up relatively well, despite inflation.

This has led more market watchers to predict that the Fed may remain aggressive with rate hikes for the foreseeable future. The probability of another 75 basis point hike from a half point hike is now considered to be around 50-50.

“Market expectations for what the Fed will do have a history of reversal based on economic data,” Lindsey Bell, chief money and market strategist for Ally Invest, said in a statement Monday. “As long as the Fed is in charge, volatility will likely remain high and the market will remain reactionary.”

Stocks could be volatile all week as investors wait Fed Chairman Jerome Powell to deliver highly anticipated speech at the Kansas City Fed’s annual Jackson Hole symposium on Friday. Also, the Fed’s next interest rate decision isn’t until September 21st. So, a lot of economic data, including the jobs report and inflation figures for August, awaits us.
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“It’s more like a bullish rally in a bear market,” Oktay Kavrak, director of product strategy at Leverage Shares, said of what’s been going on with stocks over the past few weeks. “Recession is still a base case and inflation remains stubbornly high. This could be one of those years when the market remains choppy.”

As a result, investors are clearly fleeing riskier assets. Meme stockssuch as CMA (CMA), Bed bath and beyond (BBBY) and GameStop (EMG), were again all in the red on Monday after sharp declines at the end of last week. Bitcoin and other cryptocurrencies also fell on Monday and all fell last week.

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