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Picture: BLOOMBERG
Picture: BLOOMBERG

Stocks tumbled to a 13-month low in a widespread sell-off amid concern about the Federal Reserve’s ability to tame inflationary spirals without throwing the economy into a recession.

The slide in the S&P 500 topped 3%, while the Treasury curve steepened, with the gap between two- and 30-year rates hitting the widest since mid-March as short-dated bonds led the gains.

The Dow Jones industrial average fell 653.67 points, or 1.99%, to 32,245.7, the S&P 500 lost 132.1 points, or 3.20%, to 3,991.24 and the Nasdaq Composite dropped 521.41 points, or 4.29%, to 11,623.25. It was the first time since March 31 2021 that the S&P closed below 4,000.

Investors are increasingly worried about the limits to Fed policy at a time when supply-chain disruptions pose a significant threat to inflation amid a ravaging war in Ukraine and China’s Covid-19 lockdowns.

Data on Monday showed US consumers project prices in three years to be higher compared with a month ago — a troubling sign for officials trying to keep longer-term expectations anchored.

Pandemic-era stars bore the brunt of the selling, with Cathie Wood’s flagship exchange-traded fund sinking about 10% and an ETF tracking newly public companies down the most since the onset of the pandemic.

Bitcoin slipped below $32,000, falling more than 50% from its all-time high.

The rout also spread to energy producers, easily the market’s strongest sector in 2022. The group plunged over 8% as crude slid. Big tech was not spared, with the likes of Tesla, Amazon.com  and Nvidia off by at least 5%. The Cboe Volatility Index spiked to its highest in two months.

Traders will be closely watching a host of central bank speakers this week after chair Jerome Powell on Wednesday played down the option of 75 basis-point rate hike. Fed Bank of Atlanta president Raphael Bostic told Bloomberg Television he favours policymakers continuing to raise rates by half-point increments rather than doing anything larger. In a later interview with Reuters broadcast on Twitter, Bostic added that while he saw low odds for a 75-basis-point hike in the next several months, he’s “not taking anything off the table”.

High inflation readings, a slowing economy and aggressive tightening by the Fed to rein in soaring prices have weighed on risk appetite and valuations. Even if an outright recession is avoided, the outlook for US stocks isn’t particularly bright, according to Goldman Sachs Group strategists.

“Swings will remain large until the path of inflation is clarified,” strategists led by David Kostin wrote in a note to clients, adding that “tightening financial conditions and poor market liquidity make it difficult to argue for a short-term rally similar in size to the one in late March”.

Dennis DeBusschere, founder of 22V Research wrote: “The big question is if inflation can head below 3% without the Fed causing a recession. Until that question is answered, financial conditions are biased tighter, and markets will struggle despite oversold conditions.”

The yield on 10-year Treasuries declined nine basis points to 3.03%. Germany’s 10-year yield declined four basis points to 1.09% and Britain’s 10-year yield declined four basis points to 1.96%.

West Texas Intermediate crude fell 6.4% to $102.73 a barrel and gold futures fell 1.6% to $1,853.10/oz. 

Bloomberg News. More stories like this are available on bloomberg.com

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