Stocks sank in a widespread rout amid concern about the Federal Reserve’s ability to tame decades-high inflation without throwing the economy into a recession.

The S&P 500 pushed toward its lowest since March 2021, while Treasury yields adjusted for price pressures hit the highest in more than two years. Investors are increasingly worried about the limits to Fed policy at a time when supply-chain disruptions pose a significant threat to inflation amid a ravaging war in Ukraine and China’s COVID lockdowns. Data Monday showed U.S. consumers project prices in three years to be higher compared with a month ago -- a troubling sign for officials trying to keep longer-term expectations anchored.

Pandemic-era stars bore the brunt of the selling, with Cathie Wood’s flagship exchange-traded fund sinking almost 10 per cent and an ETF tracking newly public companies down the most since the onset of the pandemic. Bitcoin sank below US$32,000, falling more than 50 per cent from its all-time high. The rout also spread to energy producers, easily the market’s strongest sector in 2022. The group plunged nearly 8 per cent as crude slid. Big tech was not spared, with the likes of Tesla Inc., Amazon.com Inc. and Nvidia Corp. off by at least 5 per cent. The Cboe Volatility Index spiked to its highest on a closing basis in two months.

Traders will be closely watching a host of central bank speakers this week after Chair Jerome Powell on Wednesday played down the option of 75 basis-point rate hike. Fed Bank of Atlanta President Raphael Bostic told Bloomberg Television he favors policy makers continuing to raise rates by half-point increments rather than doing anything larger. In a later interview with Reuters broadcast on Twitter, Bostic added that he while he saw low odds for a 75-basis-point hike in the next several months, “I am not taking anything off the table.”

The April consumer-price index report on Wednesday is the highlight of an otherwise quiet week for economic releases. Inflation is projected to have moderated on both a monthly and annual basis, partly reflecting a dip in gasoline prices that have since picked back up. While inflation likely peaked in March at 8.5 per cent, the hottest in four decades, price pressures are expected to remain elevated, keeping Fed officials on track to steadily lift borrowing costs in the months ahead.

High inflation readings, a slowing economy and aggressive tightening by the Fed to tame soaring prices have weighed on risk appetite and valuations. Even if an outright recession is avoided, the outlook for U.S. stocks isn’t particularly bright, according to Goldman Sachs Group Inc. strategists.

“Swings will remain large until the path of inflation is clarified,” strategists led by David Kostin wrote in a note to clients, adding that “tightening financial conditions and poor market liquidity make it difficult to argue for a short-term rally similar in size to the one in late March.”

More comments:

• “The big question is if inflation can head below 3 per cent without the Fed causing a recession,” wrote Dennis DeBusschere, founder of 22V Research. “Until that question is answered, financial conditions are biased tighter, and markets will struggle despite oversold conditions.”
• “Sentiment is bearish, but not at capitulation levels, market liquidity is poor which leads to greater volatility, and investors are pulling money out of equity and bond funds rather than putting it in,” wrote Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management. “These technical factors can dominate economic news over a few weeks or couple of months, and it will probably take that long for inflation improvement to become apparent.”

Here are key events to watch this week:

• Cleveland Fed President Loretta Mester, Atlanta Fed President Raphael Bostic, New York Fed President John Williams, Fed Governor Christopher Waller speak, Tuesday
• Atlanta Fed President Raphael Bostic speaks, Wednesday
• U.S. CPI, Wednesday
• EIA crude oil inventory report, Wednesday
• San Francisco Fed President Mary Daly speaks, Thursday
• U.S. PPI, initial jobless claims, Thursday
• University of Michigan consumer sentiment, Friday
• Some of the main moves in markets:

Stocks

• The S&P 500 fell 3 per cent as of 3:33 p.m. New York time
• The Nasdaq 100 fell 3.8 per cent
• The Dow Jones Industrial Average fell 1.8 per cent
• The MSCI World index fell 3 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.3 per cent
• The euro was little changed at US$1.0559
• The British pound was little changed at US$1.2336
• The Japanese yen rose 0.3 per cent to 130.23 per dollar

Bonds

• The yield on 10-year Treasuries declined nine basis points to 3.04 per cent
• Germany’s 10-year yield declined four basis points to 1.09 per cent
• Britain’s 10-year yield declined four basis points to 1.96 per cent

Commodities

• West Texas Intermediate crude fell 6.7 per cent to US$102.37 a barrel
• Gold futures fell 1.6 per cent to US$1,853.10 an ounce