U.S. stocks fell Monday, extending losses after ending last week with a rout after Federal Reserve Chairman Jerome Powell underlined policy makers’ resolve to squeeze out inflation even if it results in economic pain.
What’s happening
- The Dow Jones Industrial Average DJIA, -0.24% fell 236 points, or 0.7%, to 32,046.
- The S&P 500 SPX, -0.32% was down 33 points, or 0.8%, at 4,025.
- The Nasdaq Composite COMP, -0.71% shed 146 points, or 1.2%, to trade at 11,996.
Stocks recorded their worst day in months on Friday, when the Dow industrials tumbled 1,008.38 points, or 3%, to close at 32,283.40, its biggest percentage decline since May 18. The S&P 500 slid 3.4%, its biggest drop since June 13, and the Nasdaq Composite COMP, -0.71% tumbled 3.9%, the largest drop since June 16.
What’s driving markets?
Markets were rattled by Powell, who made blunt comments about the central bank’s commitment to bringing down high inflation on Friday during a speech at the Kansas City Fed’s annual symposium at Jackson Hole, Wyo.
See: Fed’s Powell sparked a 1,000-point rout in the Dow. Here’s what investors should do next.
Powell said the Fed would continue the fight even if it means pain for American families and businesses. His comments seemed to dash investor notions of a coming “pivot” away from aggressive rate increases.
“The market got ahead of itself on the false premise that the Fed would be easing off the brakes. The recent two-month rally was not the start of a bull market, but a rally within a bear market. Powell’s speech was not a pivot, but a more forceful restating of the Fed’s unconditional commitment to fighting inflation — and a reset for the equity market,” said David Donabedian, chief investment officer of CIBC Private Wealth, in emailed comments.
The CIO said he now expects a more drawn-out period of monetary tightening, with more risk to the outlook for economic growth and more violent stock-market reactions to news developments. “The concern going forward is that the Fed continues to raise rates even in a recession. This will be problematic for corporate profits, and the market will need to adjust,” he said.
Powell also mentioned a resilient jobs market, suggesting that he is willing to allow unemployment to climb, noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a note to clients.
That means another strong print on the state of jobs growth in August could help strengthen the Fed’s resolve.
“Due Friday, the NFP data is expected to print another month close to 300,000 new nonfarm job additions in the U.S. Over the past four months, the data clearly exceeded the market expectations, especially last month, the number printed was above half-a-million new job additions, versus around 250,000 expected by analysts,” said Ozkardeskaya.
Even if the data were to come in short of economists’ expectations, investors shouldn’t expect to see any change in the Fed’s outlook. Instead, “from now on, we expect to see a deeper downside correction in equities, and further retracement of the summer rally.”
Companies in focus
- Tesla Inc. TSLA, -1.72% Chief Executive Elon Musk said Monday he is aiming to get the electric-vehicle maker’s self-driving technology ready by year-end, and said he hopes it could quickly be in wide release in the U.S. and even Europe depending on regulatory approval, Reuters reported. Shares fell 2.3%.
Other assets
- The ICE U.S. Dollar Index DXY was flat.
- Oil futures moved higher, with the U.S. benchmark CL.1, +3.32% up 2.8% near $95.75 a barrel, while gold GC00, +0.17% ticked up 0.2% to $1,753 an ounce.
- Bitcoin BTCUSD, +1.46% rose 1.1% to trade back above $20,000.
- The Stoxx Europe 600 SXXP, -0.81% was down 0.8%, while London markets were closed for the summer bank holiday.
- The Shanghai Composite SHCOMP, +0.14% ended 0.1% higher, while the Hang Seng Index HSI, -0.73% finished down by 0.7% in Hong Kong and Japan’s Nikkei 225 NIK, -2.66% dropped 2.7%.
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