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Market Snapshot: Dow heads for first bear-market close since March 2020 amid rate, currency and economic worries

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U.S. stocks struggled for direction Monday, with tech shares attempting to hold on to a bounce while the Dow Jones Industrial Average slipped back below the threshold that would see the blue-chip gauge enter a bear market.

What’s happening
  • The Dow Jones Industrial Average
    DJIA,
    -0.94%

    was down 174 points, or 0.6%, at 29,416. A close at or below 29,439.72 would mark a 20% pullback from its Jan. 4 record close, meeting widely used criteria for entering a bear market.
  • The S&P 500
    SPX,
    -0.87%

    fell 18 points, or 0.5%, to 3,675, after dipping Friday below its June 16 closing low of 3,666.77, but closing above that level.
  • The tech-heavy Nasdaq Composite
    COMP,
    -1.06%

    rose 5 points, or 0.1%, to 10,873.

Stocks fell sharply last week, with the Dow down 4% and ending Friday at its lowest level since November 2020. The S&P 500 dropped 4.6% last week, dipping Friday below its June low before trimming losses. The Nasdaq Composite dropped over 5% last week.

What’s driving markets

Stocks were struggling to bounce back amid continued worries about rising borrowing costs and as a surging dollar continued to pressure risk assets.

The benchmark S&P 500 was down 23% through Friday from its Jan. 3 record close, dropping last week after the Federal Reserve stressed it would continue hiking interest rates aggressively to dampen inflation that is near 40-year highs.

In response, the dollar index
DXY,
+0.84%

started the week by topping 114, its highest level since 2002, and the 10-year Treasury
TMUBMUSD10Y,
3.853%

yield, which began the year around 1.65%, was offering 3.76%.

Read: Don’t look for a stock market bottom until a soaring dollar cools down. Here’s why.

“The cumulative weight of the evidence favors a more difficult time ahead,” wrote Jason Pride, chief investment officer of private wealth and Michael Reynolds, vice president of investment strategy at Glenmede, in a note.

“Inflation remains quite high, the Federal Reserve is hiking quickly and about to take rates above neutral, recession risks continue to build and current market valuations do not seem to properly reflect the likelihood of a recession,” they wrote. “Until markets properly reflect these circumstances and risks, investors should strongly consider reducing risk in their portfolios by holding less equities relative to their longer-term goals-based investment plans.”

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 U.K. pound
GBPUSD,
-1.36%

hit a record low versus the buck of under $1.04 after investors reacted negatively to last week’s debt-funded tax-slashing budget. It later recovered, but 10-year gilt
TMBMKGB-10Y,
4.281%

yields surged 26 basis points to 4.084%. Italian 10-year government bond
TMBMKIT-10Y,
4.552%

yields hit a nine-year peak above 4.4% 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%

However, Jonathan Krinsky, chief market technician at BTIG, asked whether the S&P 500’s
SPX,
-0.87%

retreat toward June lows should attract investors.

“Given the acceleration higher in the dollar, global yields and the breakdowns across global FX, it’s hard to not have concerns about longer-term implications. The good news is that in the near-term, we are much closer to a tradable bottom than we were at 3,900,” Krinsky wrote in a note.

“Despite bearish sentiment and positioning much of this year, it’s the transactional indicators that have been lacking for true capitulation. Several of those are at or near levels that suggest a bounce should be forming soon, especially as the seasonals become a tailwind in mid-October,” Krinsky said.

Technical factors may also support stocks for the short term. Krinsky noted that the 200-week average of 3,585 may provide a floor.

Investors were set to hear from a number of Federal Reserve officials on Monday. While there’s a possibility of a significant downturn, given the need to slow demand to transition the economy to a more sustainable path, there is a chance such a dire outcome can be avoided, Susan Collins, the new president of the Boston Fed, said Monday.

Atlanta Fed President Raphael Bostic was set to speak at noon ET, Lorie Logan of Dallas was set for 12:30 p.m. and Cleveland Fed President Loretta Mester was scheduled to speak at 4 p.m.

Also see: Stocks crashing? No, but here’s why this bear market feels so painful — and what you can do about it.

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