Stocks continued their selloff on Monday. It seems all confidence in the stock market has slipped away for the moment, as economic risks mount and bond yields remain near highs.
Dow Jones Industrial Average
retreated 654 points, or 2%, while the
dropped 3.2%, and the
Overall, “the path of least resistance remains lower for global equity markets to start the week,” wrote Brian Price, head of investment management at Commonwealth Financial Network.
At first, the blame was partly on a selloff in Treasuries, which had caused yields to spike. The 10-year Treasury yield rose to as high as 3.2% Monday morning after having hit a Covid-19 pandemic-era high last week. It has since fallen a tick to 3.04%, just under its pandemic-era high. But the 10-year yield has surged from 1.51% at the end of 2021, as long-term inflation expectations remain just below 3%, likely forcing the Federal Reserve to be aggressive with interest rate increases and the reduction of its bondholdings. That reduces demand for bonds, lowering their prices and lifting their yields.
That is particularly bad for technology stocks. Higher bond yields make future profits less valuable, and many fast-growing tech companies are valued on the basis that they will pump out a chunk of their profits many years in the future. The tech-heavy Nasdaq is in a bear market, defined as a 20% or greater drop, and is now trading at a level it hasn’t seen since late 2020.
But it isn’t just bond yields doing the damage. It seems the stock market just isn’t finished reflecting the entirety of the risks. The recent decline in stocks puts the S&P 500 on pace to fall another 14% from here, writes Frank Cappelleri, chief market technician at Instinet.
That isn’t even necessarily an unpopular view. “We definitely believe there will at least be another leg down,” wrote Matthew Tuttle, chief investment officer of Tuttle Capital Management.
Tom Essaye, founder of Sevens Report Research, wrote that the selling is “technical and [it is] emotions (fear/greed) that are driving the markets on an intraday basis and we should all prepare for more elevated volatility ahead,” wrote Tom Essaye, founder of Sevens Report Research.
The risks extend beyond the Fed. Russia’s war on Ukraine shows no signs of ending, while news broke Monday that Shanghai is intensifying lockdowns as part of its zero-Covid policy.
“Investors are worried about growth slowing and the economy,” wrote Solita Marcelli,
‘ chief investment officer of global wealth management for the Americas.
Specifically, the growth in China is not helping the price of oil, as WTI crude has fallen more than 6% to just under $103 a barrel. The
Energy Select Sector SPDR
Exchange-Traded Fund (XLE) dropped more than 8%.
Oil—and oil stocks—are seeing a double-whammy. Market participants are moving out of risky, or high volatility, assets for starters. On top of that, the China situation puts downward pressure on oil demand. “Oil prices are dropping fast as crude demand destruction fears grow given China’s COVID situation and the de-risking event happening with US stocks,” wrote Edward Moya, senior market analyst at Oanda.
Overseas, the pan-European
dropped 2.9%, and Tokyo’s
Cryptocurrencies were faring even worse than stocks, with Bitcoin and other digital assets plunging over the weekend and continuing to decline on Monday.
prices tumbled 6% over the past 24 hours to below $33,000, deepening losses from over the weekend after changing hands around $36,000 on Friday. The selloff brings Bitcoin to less than half the value of its all-time high of $68,990 reached in November 2021 and puts the largest crypto at its lowest level since last July.
Here are seven stocks on the move Monday:
Shares in companies sensitive to the price of Bitcoin dropped in tandem with the digital asset, with crypto exchange
(ticker: COIN) falling 19% and digital payments group
(SQ) losing 16%. Bitcoin miners
(MARA) dropped 19% and 19%, respectively.
(PLTR) stock dropped 22% after the company reported a profit of 2 cents a share, missing estimates of 4 cents a share, on sales of $446.4 million, above expectations for $443 million.
Virgin Galactic Holdings
(SPCE) stock fell 9% after getting downgraded to Hold from Buy at Truist.