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Sept. 26, 2022, 4:30 p.m. EDT

Dow enters first bear market since March 2020 as rate, currency and economic worries reverberate

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By Vivien Lou Chen and William Watts

The Dow Jones Industrial Average finished in a bear market on Monday for the first time in more than two years and the S&P 500 fell below its June closing low as investors fretted over a combination of interest-rate, currency and economic risks.

What happened

  • The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.47% finished down by 329.60 points, or 1.1%, at 29,260.81. It closed below the 29,439.72 level that marks a 20% pullback from its Jan. 4 record close, meeting widely used criteria for entering a bear market. The last time the Dow entered a bear market was on March 11, 2020; it exited on March 26 of that year.

  • The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.38% finished down by 38.19 points, or 1%, at 3,655.04 — below its June 16 closing low of 3,666.77.

  • The tech-heavy Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.23% finished down by 65 points, or 0.6% at 10,802.92.

Stocks fell sharply last week , with the Dow down 4% and ending Friday at its lowest level since November 2020. The S&P 500 fell almost 4.7% and the Nasdaq Composite dropped 5.1% last week.

What drove markets

Stocks came under pressure Monday on worries about rising borrowing costs, while the surging dollar continued to wreak havoc around the world.

The ICE U.S. Dollar Index /zigman2/quotes/210598269/delayed DXY -0.09% started the week by topping 114, its highest level since 2002. The 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.11% yield, which began the year around 1.6%, soared to 3.878% on Monday — its highest level since April 2010 — as six-month through 30-year rates all moved either closer to or above 4%. Meanwhile, all three major U.S. stock indexes added further to this year’s double-digit losses. The benchmark S&P 500, which is down 23% this year, had dropped 4.7% last week when the Federal Reserve stressed it would continue hiking interest rates aggressively to damp inflation near 40-year highs.

“This is a very dangerous period of time for markets across the board,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities in New York. “Financial conditions are tightening extremely rapidly — whether it’s dollar strength, credit spreads, or equities. Real interest rates in the last couple of weeks are moving extremely aggressively higher, which will ultimately have economic repercussions.”

“Liquidity is drying up very rapidly here, too,” Faranello said via phone.

See: First thing Fed breaks with higher rates will be the financial markets, BMO says and A surging U.S. dollar is creating an ‘untenable situation’ for the stock market, warns Morgan Stanley’s Wilson

Globally, many central banks are getting more hawkish at a time when a lot of economies, particularly in the U.S. and Europe, are turning weaker, said Tom Graff, head of investments for Facet Wealth in Baltimore, which manages more than $1 billion. “And we might only be getting near the beginning of understanding what this economic slowdown will mean,” he said.

Adding to the general market angst are sharp moves in the currencies and fixed incomes of those countries where concerns about fiscal imprudence are building.

In Asian trading, the British pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.1267% hit a record low versus the greenback of under $1.04 after investors reacted negatively to last week’s debt-funded tax-slashing budget. It later recovered, but 10-year gilt /zigman2/quotes/211347177/realtime BX:TMBMKGB-10Y +0.56% yields surged 45 basis points to 4.282%. Italian 10-year government bond /zigman2/quotes/211347230/realtime BX:TMBMKIT-10Y -0.93% yields hit a roughly 10-year peak above 4.5% after a far-right coalition won the country’s election.

See: Bailey: Bank of England ‘won’t hesitate to change interest rates as necessary’ to get inflation to 2%

A dollar that’s now trading at a 20-year high, along with a British pound that has plummeted to a record low against the dollar, are contributing to all the worries in financial markets, Graff said via phone on Monday.

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