Fears of a possible recession lifted stock markets around the world on Monday, with S&P 500 Wall Street plunging into a market known as a bear after flooding more than 20% below its early record this year.

The S&P 500 fell 3.9% to a new low for the year as investors resumed trading after the weekend and showed great news on Friday that inflation is deteriorating, not better.

The Dow Jones was down more than 875 points, or 2.8%, and the high-tech Nasdaq composite hung 4.7% as investors continued sharply on high-tech stocks once flying.
The Federal Reserve was once again at the center of Wall Street’s focus, struggling to control inflation. Its main method is to raise interest rates to slow the economy, a blunt tool that risks recession if used too aggressively.

The Wall Street Journal reported Monday that the latest inflationary news could lead the Fed to raise its short-term interest rate by a quarter of a percentage point. That’s three times the normal amount and something the Fed has not done since 1994. Traders now see a 34% probability of such a hike, up from just 3% a week ago, according to CME Group.

No one thinks that the feed will stop there, as the markets prepare for a sustained series of larger-than-usual rises. These would come in addition to a number of already encouraging signs about the economy and corporate profits, including a record low reading of consumer sentiment stuck in high gasoline prices.

While the labor market remains strong – with unemployment at 3.6% in May, almost half a century low – market stock sales have turned sharply since earlier in the pandemic, as central banks around the world declined rates to record the lows and other measures backed up prices for stocks and other investments in anticipation of the juice of the economy.