Markets around the world trembled on Monday, extending a losing streak fueled by growing panic that the global economy would be hit.
On Wall Street, the S&P 500 fell to a new low for the year, falling more than 1 percent on Monday and taking its drop for the year to more than 23 percent. Most benchmarks in Asia and Europe also fell.
While there are many unanswered questions about the potential for a recession, including when it might start and how severe it could be, investors fear it’s an increasingly likely outcome. Last week, central bankers around the world raised interest rates to combat stubbornly high inflation, moves that were meant to stymie spending by consumers and businesses.
In the United States, the Federal Reserve also signaled that it was likely to rise further, showing that it was willing to tolerate a period of higher unemployment and slower economic growth to control inflation.
“It all has to do with the Fed, and not just the Fed, but a lot of central bankers all tightening at the same time,” said Stephanie Link, chief investment strategist and portfolio manager at Hightower, an investment adviser. “We’re already slowing down in terms of the economy.”
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On Monday, the Organization for Economic Co-operation and Development he revised his forecasts for the global economy, maintaining a “modest” growth expectation of 3 percent this year but cutting its outlook for next year to 2.2 percent, down from 2.8 percent a few months ago.
“The global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine, which is dragging down growth and putting additional upward pressure on inflation around the world,” the OECD said. It also warned that there was still “substantial uncertainty about the economic outlook, with significant downside risks.”
After a brief rally this summer, the S&P 500 is on track for its third straight quarter of losses, something that hasn’t happened since the global financial crisis sent markets into a tailspin in 2008. In June, the index fell by bear market territory, marked by a 20 percent drop from its January high, a milestone that highlights a lasting shift in investor sentiment. It can be months, or even years, before a bear market ends.
The drop to a new low, after a brief recovery this summer, shows how uncertain the environment has become for investors.
“This is hard work,” said Ms. Link. “We’re going to be in a hectic environment for some time.”
On Monday, the Dow Jones Industrial Average followed suit, falling 1.1 percent and entering a bear market.
Off Wall Street, stocks in Japan and South Korea fell sharply, while stocks in China also fell as the People’s Bank of China allowed the country’s currency to weaken against the dollar to more than 7 renminbi to the dollar. , a threshold that was considered as a psychological barrier.
European markets fell, with the Stoxx 600, which fell into a bear market on Friday, dipping slightly. Most of the attention was focused on Britain, where the pound briefly fell to a record low against the dollar around $1.03 before recovering slightly. The British currency is still trading around its weakest level since 1985.
UK government bonds also came under heavy pressure for another day as investors were spooked by the new government’s announced plan that would result in more borrowing to finance its plans to cap energy prices through the winter while cutting permanently a series of taxes for households and businesses. London’s FTSE 100 stock index rebounded from an early drop and ended unchanged on Monday.
Commodity markets were also affected. The price of West Texas Intermediate crude oil, the US benchmark, fell 2.3 percent to $76.92 a barrel, while copper and gold also fell.
Daisuke Wakabayashi other jason karian contributed report.