The stock market fell on Monday, failing to build on recent gains after its best week since November 2020, as widespread selling pressure resumed amid growing fears about surging inflation leading to a looming recession.
Stocks fell during the last trading day of the month: The Dow Jones Industrial Average fell 0.7%, around 200 points, while the S&P 500 lost 0.7% and the tech-heavy Nasdaq Composite 0.9%.
The Dow and S&P 500 are coming off their best weekly gains since November 2020 after snapping a seven-week losing streak last Friday, as recession fears cooled slightly thanks to positive economic data showing inflation may be moderating somewhat.
Concerns about inflation and a potential economic slowdown resurfaced with a vengeance on Tuesday, however, after a flurry of negative headlines out of Europe including Euro zone inflation surging 8.1% in May, a new record high for a seventh month in a row.
Oil prices surged following the European Union’s decision to ban more crude imports from Russia, which also raised fears about inflation: U.S. benchmark West Texas Intermediate rose to around $119 per barrel, while international benchmark Brent crude jumped to $124 per barrel.
Energy stocks jumped as a result on Tuesday—the only positive sector in the S&P 500—as shares of Occidental Petroleum, Marathon Oil and Diamondback Energy all rose 3% or more.
In a new note, Morgan Stanley strategist Mike Wilson warned that high inflation and a hawkish Federal Reserve would lead to a “fire and ice” scenario for stocks, with a major correction looming later this summer despite last week’s “bear market rally.”
Stocks are still on track to finish in the red this month, with the Dow and S&P 500 falling less than 1% while the Nasdaq lost over 2%. Despite the relief rally last week, stocks are still on pace for yet another consecutive month of losses, with investors remaining worried that surging inflation and rising rates could lead to a possible recession.
“Recession calls are sure to get louder as the Fed continues working to rein in inflation and politicians running in the midterms portray the economy’s struggles to their advantage,” says Mark Zandi, chief economist at Moody’s Analytics. “Ignoring the calls is not advisable, but given the economy’s strong fundamentals, buying into those calls is not recommended either.”
What To Watch For:
President Joe Biden will meet with Federal Reserve Chair Jerome Powell later on Tuesday. The pair will discuss tackling inflation, which is a “top economic priority” for the current administration, according to a recent op-ed from Biden in The Wall Street Journal.
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