Dow Jones: Stocks Fall on Fears of Another Big Fed Rate Hike

The Dow ended the day down more than 640 points, or 1.9%. The S&P 500 and the Nasdaq fell 2.1% and 2.6% respectively.

All 30 Dow Jones stocks were down, with only 25 of the S&P 500 Index stocks trading higher on Monday.

Stocks also fell on Friday as the market snapped a four-week winning streak. Markets rallied in July and August after a brutal first half of 2022. But the pendulum may be swinging back to pessimism.

Concerns are growing that the Federal Reserve is not yet done with its large rate hikes. The Fed raised rates by three-quarters of a percentage point, or 75 basis points, in both June and July.
Markets are fighting the Fed
But after the most recent data on consumer and producer prices, which showed the rate of inflation cooling somewhat last month, investors began to hope that the Fed might raise rates by just half a point in September.
The idea was that inflation was declining and the economy might be slowing down. However, the labor market remains strong and retail sales have held up reasonably well, despite inflation.

That has led more market watchers to predict that the Fed may remain aggressive on rate hikes for the foreseeable future. The odds of another 75 basis point increase versus a half point increase are now seen as around 50-50.

“Market expectations of what the Fed will do have a history of fluctuating based on economic data,” Lindsey Bell, chief money and markets strategist at Ally Invest, said in a report Monday. “As long as the Fed is in the driver’s seat, volatility is likely to remain elevated and the market will remain reactionary.”

Stocks could be volatile all week as investors wait for Fed Chairman Jerome Powell to deliver a much-anticipated speech at the Kansas City Fed’s annual Jackson Hole symposium on Friday. Also, the Fed’s next decision on interest rates isn’t until September 21st. So there is still plenty of economic data to come, including the jobs report and the August inflation numbers.
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“This has been more like a bull rally in a bear market,” Oktay Kavrak, director of product strategy at Leverage Shares, said of what has happened to the stock in recent weeks. “The recession is still a base case and inflation is still stubbornly high. This could be one of those years where the market is still choppy.”

As a result, investors are clearly fleeing riskier assets. meme actions, like AMC (AMC), Bed bath and beyond (bbby) Y gamestop (GME), were in the red again on Monday after big drops at the end of last week. Bitcoin and other cryptocurrencies also fell on Monday and all of them plunged last week.

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