S&P 500 ETFs are trading in bearish territory

JThe S&P 500 and related exchange-traded funds slipped into bearish territory on Monday as investors bet on an increasingly aggressive monetary policy outlook from the Federal Reserve in the face of rising inflationary pressures.

Monday, the SPDR S&P 500 ETF (NYSEARCA: SPY)the iShares Core S&P 500 ETF (NYSEARCA: IVV)and the Vanguard 500 Index (NYSEARCA: VOO) each fell 2.9%. ETFs are down about 20.9% from their highs in early January 2022.

If Monday’s losses continue, the benchmark S&P 500 will enter a bear market for the first time since 2020 – a bear market is defined by a 20% loss from a recent high.

US equities have been battered this year as the Fed outlined plans to undo post-pandemic accommodative policies, as well as volatility associated with geopolitical risks. The most recent selloff was attributed to Friday’s data which showed US consumer prices rose 8.6% in May year-on-year, the fastest pace since 1981. As a result , many expect the Fed to accelerate its pace of raising interest rates.

“The very fact that it beat expectations further riled investors and showed how difficult it is to try to contain inflation,” said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown. . the wall street journal. “The worry is that inflation is getting too hot for central banks to handle and they will have to dose the savings with cold water in the form of tougher policy.”

The Fed kicks off a two-day policy meeting on Tuesday, and most expect the central bank to announce a half-percentage-point hike in benchmark interest rates on Wednesday. However, there are growing expectations that the Fed will act even more aggressively this year in response to Friday’s inflation update.

According to the CME Group, futures options found traders betting on an 81% chance the Fed could raise interest rates by 2.5 percentage points before the end of the year, a hike half a percentage point at every Fed meeting this year.

“It looks like inflation is going on longer than expected,” Kiran Ganesh, multi-asset strategist at UBS, told the WSJ. “People are now starting to worry that the Fed has to go further or faster in terms of interest rates.”

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Garland K. Long