The stock market is continuing to tumble Monday—now falling into bear market territory. Bond yields are jumping to new heights as fears about Federal Reserve rate hikes persist. 

In morning trading, the Dow Jones Industrial Average DJIA –2.11%  fell 715 points, or 2.3%, while the S&P 500 SPX –3.00%  dropped 3.2%, and the Nasdaq Composite COMP –3.76%  slumped 3.8%. This comes on top of declines last week, with the S&P 500 falling 6.3% from Tuesday’s close to Friday’s close. 

The stock market is now dropping back down near previous lows, which are in bear market territory, defined as a larger than 20% fall. The S&P 500 opened just below 3800. It had fallen to just above that level on May 20, before bouncing back for a short period. If the index closes below 3837, it will have closed in bear market territory.  

“Global stocks are trading sharply lower and bond yields rose to new multi-year highs overnight amid fears that the Fed is getting more aggressive into an economic slowdown,” wroteTom Essaye, founder of Sevens Report Research. 

The 2-year Treasury yield, which attempts to forecast the levels of the federal-funds rate a couple of years from the present, was up to 3.2%, a new multi-year high. It has exploded higher from a pandemic-era low of just over 0.1%. 

That comes as markets foresee more Fed rate hikes in the future. The Fed has been expected to lift the fed-funds rate by half of a percentage point in each of its summer meetings. But it’s now expected to lift rates in September after the central bank’s minutes had implied that slowing economic growth could compel the Fed to slow down its pace of rate hikes. Barclays economists now expect the Fed to lift the fed funds rate by three quarters of a point at its next meeting.

Friday’s inflation reading showed that the consumer price index gained 8.6% year-over-year in May, above the prior reading of 8.3%. Soaring service prices, like hotel prices and airfares contributed, as did oil and food. Now, it seems the Fed has no choice but to remain aggressive in lifting rates.

“Markets have set off on another rocky ride over inflation fears,” said Steve Clayton, a fund manager at Hargreaves Lansdown. “Investors are now fretting that the economic data will force the U.S. Federal Reserve’s hand into pushing interest rates up, further and faster than previously forecast.”

As those short-term rates race higher, it’s forcing a near inversion of the yield curve. That’s when short-term rates move above long-term rates. Today, that reflects that high inflation in the near-term will force the Fed to rapidly lift rates, eventually causing economic demand to get hit for the longer-term. The 10-year Treasury yield was trading at 3.28% Monday, near a multi-year high.

An inversion of the two and ten year Treasury yields can often portend a recession within the next year or two, but not always.

Higher U.S. bond yields are also bringing the dollar higher. Global investors buy up dollars when U.S. financial assets become more attractive. The U.S. Dollar Index is up 0.8% to just over 104, around the level it hit May 12 and a multi-year high.

The stock market does not want to see a stronger dollar. A higher dollar means that when U.S. multinational companies translate their overseas revenue back into dollars, they accrue fewer dollars.

The hope is that the stock market is near a bottom, but that’s not entirely likely. As long as inflation remains problematically high, the Fed will stay in rate-hiking mode. As long as that’s the case, yields could move higher, which would bring stocks down even more. One key to inflation is wage increases, a result of companies looking to hire from a relatively small pool of applicants. Firms will keep prices high as long as they have to keep wages high. 

“If the labor market starts to loosen up, inflation expectations will decline and 10 year yields will move lower,” wrote Dennis DeBusschere, founder of 22V Research. “At that point, investors could start thinking about being long risk assets again, but not before.”

Overseas, the pan-European Stoxx 600 fell 2.2% and Tokyo’s Nikkei 225 ended 3% lower.

Bitcoin BTCUSD –15.30%  and other cryptocurrencies were deep into the red. Bitcoin—the largest digital asset—tumbled 11% over the past 24 hours to below $24,400, the lowest level since late 2020. 

Cryptos have largely proved to be correlated to the stock market, so the recent selloff in equities heaps downward pressure on Bitcoin and its peers. Pain in digital assets was exacerbated by crypto lending platform Celsius Network ceasing withdrawals of crypto deposits from its platform.

Here are five stocks on the move Monday:

Tesla (ticker: TSLA) stock was falling 5.1%, as the Nasdaq tumbles, even after the electric vehicle maker got upgraded to Outperform from Sector Perform at RBC. 

Zendesk (ZEN) stock dropped 6.9% after getting downgraded to Equal Weight from Overweight at Morgan Stanley. Docusign (DOCU) continued its larger tumble since September, down another 9.3% Monday, after getting downgraded to Underperform from Peer Perform at Wolfe Research.  Kosmos Energy (KOS) stock fell 9.3% after the price of oil dropped, plus the stock got downgraded to Hold from Buy at Berenberg. 

Micron Technology (MU) stock dropped 3.5% after getting downgraded to Hold from Buy at Summit Insights. 

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