Dow Falls 600 Points As Experts Warn Bear Market Rally Is ‘Grinding To A Halt’

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The stock market continued to plunge on Monday after the summer rally on Wall Street fizzled out last week, with investors once again growing nervous about aggressive interest rate hikes from the Federal Reserve as experts warn that the “textbook” bear market rally has run out of steam.

Key Facts

Stocks were on track for their worst single-day decline since late June: The Dow Jones Industrial Average was down 1.8%, over 600 points, while the S&P 500 lost 2% and the tech-heavy Nasdaq Composite 2.4%.

U.S. stocks opened lower after European markets fell sharply, driven by expectations for more rate hikes from the European Central Bank, while the euro fell below parity with the U.S. dollar for the second time this year.

Euro zone recession fears spiked once again as experts warn of a potential energy crisis this winter, especially as Russia squeezes the supply of natural gas to EU member countries.

U.S. markets, meanwhile, fell as traders anticipate more hawkish commentary from Federal Reserve chair Jerome Powell at the central bank’s upcoming Jackson Hole Economic Symposium this week.

Powell is likely to reiterate what Fed officials have been publicly saying for weeks—that there needs to be a more meaningful decline in inflation before the central bank can slow the pace of interest rate hikes and monetary tightening.

Big tech stocks moved lower and led market declines on Monday as investors worried about more rate hikes, with Google-parent Alphabet falling 2.5%, Facebook-parent Meta 3%, Amazon 3.5% and Netflix more than 6%.

Crucial Quote

The summer gains look like a “textbook example of a bear market rally,” which appears to be “grinding to a halt,” according to Bespoke Investment Group. “Rallies can’t go on forever, so the pullback shouldn’t surprise anyone, but if the bulls don’t get back on the field soon, the S&P 500’s chart will only look increasingly worse,” the firm predicts.

Key Background:

“Last week brought an end to the late summer winning streak that saw stock markets recover a significant—and some would argue overly so—portion of the losses endured this year,” explains Craig Erlam, senior market analyst at Oanda. The stock market fell roughly 20% in the first half of this year, plunging into bear market territory before reaching a low point on June 16. Since then, the S&P 500 rallied nearly 15%, though a more than 3% decline last week ended the benchmark index’s recent streak of four consecutive weeks of gains.

Tangent

Meme stocks like Bed Bath & Beyond and AMC Entertainment, which made a comeback during this summer’s rally, plunged on Monday. Shares of movie-theater chain AMC tanked over 30% on news last Friday that rival company Cineworld is reportedly filing for bankruptcy as attendance struggles to recover from pandemic lows. Retailer Bed Bath & Beyond, meanwhile, continued to fall, losing another 2% as investors continued to sell shares following last week’s news that activist investor Ryan Cohen had sold his entire stake in the company.

Further Reading

Bank Of America Warns Of ‘Textbook’ Bear Market Rally, Predicting New Lows For Stocks (Forbes)

Euro Falls Below Dollar As Europe Gears Up For Energy Crisis (Forbes)

Ford, Tesla And Netflix Are Among The Best-Performing Stocks During This Summer’s Massive Rally (Forbes)

Fed Officials Pledge More Big Rate Hikes Until There Is A ‘Meaningful’ Decline In Inflation (Forbes)

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