Dow sinks more than 600 points as investors fret over Fed’s next move

The losses follow Friday’s pullback, which broke up the summer rally that had given the S&P 500 four straight weeks of growth and lifted it from its mid-June lows. That’s when the index crossed into a bear market — meaning it had lost 20 percent of its value since its most recent peak. Whether recent losses are temporary or represent a change in direction remains to be seen.

“Though some bulls may be hoping the summer rally means the bear market is behind us, it’s important to keep in mind that bear market rallies like this one aren’t uncommon,” Larkin said.

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Monday’s market jitters come as Fed officials are preparing to gather in Jackson Hole, Wyo., for their annual economic symposium. Investors are keenly interested in what Chair Jerome H. Powell might have to say about inflation on Friday and any sign that the central bank might change course in its efforts to combat it.

The gathering is separate from the central bank’s regularly scheduled policy-setting meetings, during which the Federal Open Market Committee assesses economic conditions and determines monetary policy, including whether to change interest rates.

The stock market’s steady sell-off through much of 2022 has been closely linked to the Fed’s campaign to rein in red-hot inflation by raising interest rates. Higher rates tamp down spending, which theoretically keeps prices from rising as quickly. The Fed has raised rates four times this year to that end, with three more increases planned. But the central bank also runs the risk of raising rates too quickly and tipping the economy into a recession.

The most recent stock-market rally was driven in large part by softening inflation, which moderated to 8.5 percent last month thanks to falling gas and energy prices. But Powell has indicated the central bank would have to see sustained evidence that prices are under control before it changes course.

Investors are now realizing that the Fed still has a long way to go before it gets inflation down to its 2 percent target, said Wayne Wicker, chief investment officer of MissionSquare Retirement. That suggests more market volatility could be on the way.

“I think we’re about to enter a period of choppiness here,” Sand Hill Global Advisors chief investment officer Brenda Vingiello said on CNBC. “We need more data to give us more of an indication of just how far the Fed needs to go.”

On Monday, riskier investments like meme stocks and cryptocurrencies got hammered, spurring harsh losses for those speculative assets.

Bed Bath & Beyond continued its descent, sliding an additional 16.2 percent, to $9.24. The housewares chain has been in free fall since two major shareholders liquidated their holdings last week, erasing most of the August rally that brought it above $25 per share. AMC, another favorite of small investors, sank 42 percent Monday after the owner of Regal Cinemas warned of a potential bankruptcy filing, underscoring the sector’s struggle to draw moviegoers back after the pandemic. Cryptocurrencies also lost value, with bitcoin declining 2.3 percent Monday.

Ford shares fell 5 percent after the automaker announced plans to slash 3,000 jobs as part of its transition to electric vehicles.

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Meanwhile, European markets are also teetering on whether policymakers can control inflation without slowing growth too much.

In Europe, too, central banks are reining in monetary policy to get inflation under control, although they are raising rates at a slower pace than their U.S. counterparts. Britain’s central bank recently delivered its biggest rate increase since 1995, raising its primary interest rate by 0.5 percent. The European Union raised rates by a similar margin.

Analysts believe they are moving more cautiously, in part, because the continent faces an energy crisis linked to Russia’s invasion of Ukraine and its status as a major supplier of natural gas. The odds of a recession are greater in Europe than they are in the United States, LPL Financial chief economist Jeffrey Roach said.

The Pan-European Stoxx 600 lost nearly 1 percent Monday. Germany’s Dax index lost 1.2 percent, and the U.K.'s FTSE 100 dropped 0.2 percent.

China, meanwhile, faces a different challenge. The country’s ailing economy has seen a marked decrease in economic growth, stemming in part from its “zero covid” policy. A heat wave enveloping a good portion of the country is also forcing a slowdown in factory production there, LPL Financial chief global strategist Quincy Crosby said.

The country’s central bank is now in the position of lowering interest rates to stimulate economic growth.

Oil prices were largely flat Monday, with West Texas Intermediate crude trading just above $90 a barrel and Brent crude, the global benchmark, trading below $97.