As US stocks plunges into bear market, Wall Street investors fear of drastic rate hike

The Dow Jones Industrial Average (INDU) which fell 876 points (or 2.8%) on Monday, placed United States stocks in a 'bear market' with Wall Street investors worried about the surge in rates. According to a CNN report, the Nasdaq (an American stock exchange) was down by 4.7%, having lost over 10% in the previous two trading days. The broader S&P 500 plummeted by 3.9%. This index is currently over 20% below its all-time high established in January 2022, indicating a bear market in stocks. 

Furthermore, fears of a recession mounted after the dismal 'Consumer Price Index' report on Friday revealed that US inflation was substantially higher than experts had predicted last month. This might complicate the Federal Reserve's attempts to keep the inflation under control. 

Following a half-point rate hike in May - the first since 2000 - Fed Chair Jerome Powell promised additional rate hikes until the central bank was convinced that inflation was under control. The Fed would then continue its usual quarter-point raises, he added. 

Wall Street is increasingly asking Fed to take firmer measures to keep prices in check

However, following May's higher-than-expected inflation report, Wall Street keeps asking the Fed to take stronger measures to keep prices in check. On Monday, Jefferies joined Barclays in forecasting that the Federal Reserve will raise rates by three-quarters of a percentage point, the first time the Fed has done so since 1994. 

The risk of higher rises, according to Sam Stovall, chief investment strategist at CFRA, pulled the markets down on Monday. Stovall said, "After holding their breath for nearly a week awaiting the US CPI report for May, investors exhaled in exasperation as inflation came in hotter than expected," CNN reported.   

Apart from this, investors are concerned about the two outcomes, none of which is favourable, according to CNN. For firms, higher rates entail higher borrowing expenses, which can cut into their bottom lines. Moreover, the Fed's excessive approach might accidentally send the US economy into a recession, especially if firms begin to lay off workers and the hot housing market begins to disintegrate. Although both the employment and housing markets are softening, none appears to be in danger of collapsing. 

The bull market that began on March 23, 2020, has come to an end with the S&P 500 closed in a bear market. According to an ANI report, markets in India may become jittery as a result of this. The Federal Reserve's rate hikes have an impact not just on the US economy, but also on the macroeconomic outlook and monetary policy of other developing markets in developed economies like the United States and many European countries (primarily Western). As a result, financial institutions, notably Foreign Institutional Investors (FIIs), decide to borrow money in the US at low-interest rates in dollars and then invest it in emerging-market government bonds in domestic currency to earn a higher rate of return, ANI reported.

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