Dow drops almost 300 points as recession fears keep pressure on stocks

What’s driving the market

Investors have become increasingly concerned about a recession many feel is all but inevitable given the determinedly hawkish stance of major monetary authorities, such as the Federal Reserve and European Central Bank, which continue to battle high inflation.

Read: The stock market is sliding because investors now fear recession more than inflation

Last week, alongside the Bank of England, the two central banks increased interest rates by 50 basis points to multiyear peaks and stressed that borrowing costs would likely go higher for longer than the market had hoped.

“The Fed and ECB seem determined to leave a lump of coal in everyone’s stockings this holiday season,” said Stephen Innes, managing partner at SPI Asset Management.

“With economic data undershooting expectations, it’s not a stretch to think investors may shift their focus from inflation and the Fed to the growing impact that the Fed’s actions are likely to have on the economy in 2023,” Innes said.

The soft performance on Wall Street in previous sessions and worries about a global slowdown saw Asian stock markets fall back on Monday, with China’s Shanghai Composite
SHCOMP,
-1.92%
finishing down by 1.9% amid more concerns about spiking COVID infections in the world’s most populous nation.

It may pay to take a long view on China as it relaxes its COVID curbs, which have been seen as a brake on consumption in the world’s second-largest economy, George Young, portfolio manager with Villere & Co., said in a phone interview.

Villere & Co. expects mining company Freeport-McMoRan Inc.
FCX,
-2.70%,
for example, to benefit from a renewed pickup in copper demand as China’s economy eventually gets traction, Young said. Freeport looks set to see a down year in the near term, but is set for 40% earnings growth three years out, predicated on China’s comeback, he said.

Analysts noted that investors had shifted from believing that bad news on the economy was good news for both bonds and equities — because it discouraged central banks from being too aggressive in their policy tightening — and were now taking bad economic news for what it is, a scenario that may damage company earnings.

“The biggest change in markets over the last few weeks, in our view, is the shifting correlation between stocks and bonds. For most of this year bonds and stocks traded in tandem, as inflation ruled the roost,” said Jonathan Krinsky, chief market technician at BTIG, in a note to clients.

“Recently, that has pivoted and lower rates have been met with lower stocks, presumably on fears of economic slowdown. We expect that theme to grow louder into 2023,” Krinsky added.

Walt Disney Co.
DIS,
-4.84%,
Nike Inc.
NKE,
-3.02%
and Microsoft Corp.
MSFT,
-2.15%
were the biggest decliners in the Dow Jones Industrial Average during the final hour of trading.

The National Association of Home Builders’ monthly confidence index fell two points to 31 in December, the trade group said on Monday. It’s the 12th month in a row that the index has fallen. Outside of the pandemic, the December reading of 31 is the lowest level since mid-2012.

Companies in focus

• About 17.5 million Twitter votes were cast in favor of Elon Musk stepping down from leading the company, Musk’s Twitter account said Monday, a day after he posed the question to users of the social media platform. Shares of Tesla Inc. 
  TSLA,
  -0.01%,
  the electric-car company he also heads, fell 0.3%.

• The European Union accused Meta Platforms Inc. 
  META,
  -3.85%
  of breaching antitrust rules by allegedly distorting competition in the markets for online classified ads. Meta shares fell 4%.

— Jamie Chisholm contributed to this article.