SACHA PFEIFFER, HOST:
It was another ugly day for stocks. The S&P 500 fell by 3.9%, which pushed it into a bear market.
NPR's David Gura is here to tell us more. Hi, David.
DAVID GURA, BYLINE: Hey, Sacha.
PFEIFFER: What's the overview on Wall Street? What's happening?
GURA: Yeah, so the S&P is this broad representation of stocks of the largest companies. It's now in what's called bear market territory, meaning it's down more than 20% from its recent high. And that's just how much pessimism there is among investors about where the U.S. economy is heading because of this current period of high inflation.
Now, many people thought prices had peaked or they were starting to level off. But the latest inflation data from the Labor Department on Friday indicated inflation actually got worse in May. Sacha, prices rose at their fastest annual pace in more than four decades.
PFEIFFER: And how does this high inflation affect the market?
GURA: Well, this has been a very bad year for stocks. The Fed is fighting high inflation, and it does that by slowing demand. It's increasing interest rates and making borrowing more expensive. This is risky. The Fed could tip the U.S. economy into a recession if it hikes interest rates too aggressively. The reason is raising rates makes borrowing more expensive for everyone. That'll lead to people pulling back on their spending and to companies spending less, which could lead to layoffs. Dave Sekera is the chief U.S. market strategist at Morningstar.
DAVE SEKERA: More now than ever, you know, with inflation being as high as it is and seeing some softness, you know, in the U.S. economy, the Fed really has a very delicate balancing act, you know, this month and actually for, you know, the next couple of months.
GURA: Sacha, the Fed is scheduled to meet this week, and it's signaled it's likely to raise interest rates by another half a percentage point at this meeting and again at the following meeting. Now there is speculation the Fed could hike interest rates by more than that or more times going forward.
PFEIFFER: And, David, there are so many other things happening around the world that I assume could play a role in spooking markets.
GURA: Yeah, there continues to be so much geopolitical uncertainty from the war in Ukraine to crackdowns on COVID in parts of Asia. You know, so far, people have continued to spend and jobs are plentiful. The unemployment rate is at 3.6%, which is very close to its pre-pandemic low. And that's made the Fed hopeful it can pull this off without slowing down the economy too much. But bottom line, no one knows how this is going to play out given persistent high inflation. And, Sacha, Wall Street is eager to hear more from the Fed chair on Wednesday.
PFEIFFER: And as you know, it's not just stocks falling - crypto plunging, savings accounts pay so little. Is there anywhere for investors to go in a satisfying way?
GURA: U.S. Treasuries are often a safe haven, but there's also been a sell-off in bonds. And Bitcoin's backers said it would be an inflation hedge, but it's lost almost two-thirds of its value since it hit its all-time high just last year.
I asked Amanda Agati if there is a safe haven right now. She's the chief investment officer at PNC Financial Services.
AMANDA AGATI: I feel like I need to invoke a musical reference here, a Martha and the Vandellas reference - nowhere to run and nowhere to hide.
GURA: Always appreciate a Motown reference from a Wall Street analyst. There have been bright spots here and there, but Monday's sell-off was really broad-based. Tech sold off again. Amazon was down about 5%. What was surprising is travel was also lower. Demand has been high because people have been wanting to take trips again. Airlines like United and Delta were down on Monday; so was Airbnb, from 8% to 10%. The fear is this could be a sign people will start scaling back on their plans to travel.
PFEIFFER: But I'm sure there are analysts out there that say, keep investing steadily; it's a long game; don't panic just because of what's happening now.
GURA: Absolutely. So everyone I spoke with said sell-offs are startling, and this volatility is likely to continue. But Amanda Agati counsels her clients not to get rattled.
AGATI: The challenge at this moment is for investors to not get too bearish and too conservative and pull the ripcord too soon here.
GURA: In other words, she says, take the long view. And remember, Sacha, in January, stocks were trading at record highs.
PFEIFFER: NPR's David Gura, thank you.
GURA: Thank you. Transcript provided by NPR, Copyright NPR.
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