The Dow Jones Industrial Average, an index that tracks the performance of major stocks, fell by nearly 330 points on Monday, slipping into bear market territory.
The term “bear market” refers to a prolonged decline in investment prices, and is typically recognized when a broad market index falls by 20 percent or more from its most recent high. The DJIA is down 20.5 percent to 29,260.81 from its January 4 record high close of 36,799.65.
The S&P 500 also set a new closing low for 2022 on Monday, falling to 3,655.04. The Nasdaq Composite, the third of the three “headline” stock indices, also measured a significant selloff. For commodities, the oil benchmark ended the day at $76.71, ticking down 2.58 percent, marking its lowest point since Jan. 3.
Since the Federal Reserve started aggressively hiking interest rates to curb soaring inflation — which hit 8.5 percent over the past twelve months as of July — the value of the U.S. dollar has surged. A rising dollar tends to reduce U.S. multinational companies’ profits and therefore corporate earnings, which dampens stock market prospects. Morgan Stanley’s Michael Wilson, a prominent Wall Street analyst who predicted stock market selloffs this year, suggested that a climbing dollar could eventually precipitate an economic crisis.
“The recent move in the U.S. dollar creates an untenable situation for risk assets that historically has ended in a financial or economic crisis, or both,” wrote Wilson. “While hard to predict such events, the conditions are in place for one, which would help accelerate the end to this bear market.”
Combined, rising rates and the rising dollar are causing anxiety among stock investors. Third-quarter earnings are set to be released soon. If positive, the results could alleviate the fears surrounding corporate earnings plummeting.
In August, the U.S. technically entered a recession after real gross domestic product (GDP), the main measure of output in the economy, experienced two consecutive quarters of negative real growth.