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Wall Street got back to slumping Monday to kick off a week full of updates about how bad inflation is and how corporate profits are handling it.
The Standard & Poor's 500 index fell 1.2% and gave up the majority of its gains from the prior week. The Dow Jones industrial average slipped 0.5%, and the Nasdaq composite dropped 2.3%.
Stocks of smaller companies were some of the biggest losers, with the Russell 2000 index down 2.1%, as worries about a possible recession continue to dog markets. The highest inflation in four decades is pushing the Federal Reserve to hike interest rates, which puts the clamps on the economy and pushes downward on all kinds of investments.
Parts of the economy are slowing already, though the still-hot jobs market remains a notable exception.
COVID also continues to drag on the global economy. An outbreak of infections is forcing casinos in the Asian gambling center of Macao to shut for at least a week. That sent Wynn Resorts and Las Vegas Sands down more than 6% apiece for some of the larger losses in the S&P 500.
Twitter lost even more, 11.3%, in the first trading session after billionaire Elon Musk said he wants out of his deal to buy the social media platform for $44 billion. Twitter said it will take Musk to court to uphold the agreement.
Other big technology companies were also particularly weak. It’s a continuation of this year’s trend, in which rising rates most hurt the investments that soared highest earlier in the pandemic.
The struggles pulled the Nasdaq down 262.71 points to close at 11,372.60. The S&P 500 dropped 44.95 to 3,854.43, and the Dow fell 164.31 to 31,173.84.
In the bond market, a warning signal continued to flash about a possible recession. The yield on the 10-year Treasury slid to 2.98% from 3.09% late Friday as investors moved dollars into investments seen as holding up better in a downturn. It remains below the two-year Treasury yield, which fell to 3.07%.
Such a thing doesn’t occur often, and some investors see it as a sign that a recession may hit in the next year or two. Other warning signs in the bond market that some see as more reliable, which focus on shorter-term yields, still aren't flashing. But they also are showing less optimism.
Regardless of whether a recession is imminent, investors probably need to brace for much more volatile markets than they’ve become accustomed to over the last 40 years, strategists at BlackRock said Monday.
For decades, an era of “Great Moderation” smoothed out swings in economic growth and inflation and rewarded investors for “buying the dip” whenever prices dropped. Now, with production constraints driving inflation higher, heavy debt levels weighing on economies and “the hyper-politicization of everything” affecting policy decisions, BlackRock strategists say they’re expecting more volatility and shorter time periods between recessions.