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Dow futures tumble 500 points with the S&P 500 poised to fall back into bear market territory

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U.S. stock futures dropped on Monday morning, putting the S&P 500 heading in the right direction to fall back into bear market territory and possibly to a latest low for 2022. A jump in short-term rates drove the negative sentiment as investors still reeling from a hotter-than-expected inflation report on Friday braced for the Federal Reserve to lift rates later within the week.

S&P 500 futures fell 2.3% after the benchmark closed Friday down 19% from its record high and nearly 2.4% above its sell-off low from last month. The S&P 500 briefly traded in a bear market — down 20% from its high — about three weeks ago but did not close in that territory. The stock market then bounced in late May until the selling returned last week.

Futures tied to the Dow Jones Industrial Average dropped 573 points, or 1.8% after it posted its worst week since January. Nasdaq 100 futures tumbled 2.9%.

The short-term 2-year Treasury yield rose by 15 basis points to three.2% Monday, reaching its highest level since 2007 as investors bet the Fed could have to get much more aggressive to squash inflation. At one point within the session, the 2-year rate traded above its 10-year counterpart for the primary time since April, a so-called yield curve inversion which is seen as an indicator of a recession.

The main averages last week posted their biggest weekly declines since late January as investors grew increasingly concerned rising inflation will tip the economy right into a recession. The Dow and S&P 500 fell 4.6% and 5.1%, respectively, while the Nasdaq Composite lost 5.6%. A piece of those losses got here Friday, when hotter-than-expected U.S. inflation data spooked investors. The Dow dropped 880 points, or 2.7%. The S&P 500 and Nasdaq lost 2.9% and three.5%, respectively.

The Bureau of Labor Statistics reported Friday that the U.S. consumer price index rose last month by 8.6% from a 12 months ago, its fastest increase since December 1981. That gain topped economists’ expectations. The so-called core CPI, which strips out food and energy prices, also got here in above estimates at 6%.

On top of that, the preliminary June reading for the University of Michigan’s consumer sentiment index registered at a record low of fifty.2.

Gasoline prices topped $5 a gallon over the weekend, further fanning fears over rising inflation and falling consumer confidence.

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Shares that might be hurt essentially the most in a recession led the losses in premarket trading Monday with shares of Marriott, Hilton and Delta Air Lines down a minimum of 3%.

Tech shares were also taking hits with Amazon.com, Nvidia and Netflix also down a minimum of 3%.

Bitcoin tumbled below $24,000 on Monday after ending Friday above $29,000 as risk-averse investors dumped crypto amid rising rates.

The Fed is anticipated to announce a minimum of a half-point rate hike on Wednesday. The Fed has already raised rates twice this 12 months, including a 50-basis-point (0.5 percentage point) increase in May in an effort to stave off the recent inflation surge. Though some economists after the recent CPI report believed the Fed could even raise rates by 0.75% this week.

“May’s CPI report showed scant signs of inflation peaking, though we still expect peaking soon. The report also suggests a more hawkish Fed and better recession risk,” wrote Ed Yardeni, president of Yardeni Research.

“Investor and consumer sentiment each have soured. But this time, pervasive bearishness is probably not as useful a contrarian bullish signal as previously,” he said, adding that the firm now sees a forty five% probability of a “mild recession;” that is up from the previous forecast of 40%.

Stocks have had a troublesome 12 months as recession fears rise together with consumer prices. The S&P 500 is down 18.2% 12 months so far through Friday’s close. It is also 19.1% below an intraday record set in January. The Dow has fallen 13.6% in 2022, and the Nasdaq Composite is deep in bear market territory, down 27.5% this 12 months and trading 30% below an all-time high set in November.

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