NEW YORK (AP) — Wall Street rumbled to the edge of a bear market Friday after another drop for stocks briefly sent the S&P 500 more than 20% below its peak set early this year.
The S&P 500 index, which sits at the heart of most workers’ 401(k) accounts, was down as much as 2.3% for the day before a furious comeback in the final hour of trading sent it to a tiny gain of less than 0.1%. It finished 18.7% below its record, set on Jan. 3. The tumultuous trading capped a seventh straight losing week, its longest such streak since 2001.
Rising interest rates, high inflation, the war in Ukraine, and a slowdown in China’s economy are all punishing stocks and raising fears about a possible U.S. recession. Compounding worries is how the superhero that’s flown to Wall Street’s rescue in the most recent downturns, the Federal Reserve, looks less likely to help as it’s stuck battling the worst inflation in decades.
The S&P 500 finished the day up 0.57 points at 3,901.36. The Dow Jones Industrial Average swung from an early loss of 617 points to close 8.77 higher, or less than 0.1%, at 31,261.90. The Nasdaq composite trimmed a big loss to finish 33.88 points lower, or 0.3%, at 11,354.62.
People are also reading…
Because the S&P 500 did not finish the day more than 20% below its record, the company in charge of the index says a bear market has not officially begun. Of course, the 20% threshold is an arbitrary number.
“Whether or not the S&P 500 closes in a bear market does not matter too much,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “A lot of pain has already been experienced.”
Many big tech stocks, seen as some of the most vulnerable to rising interest rates, have already fallen much more than 20% this year. That includes a 37.2% tumble for Tesla and 69.1% nosedive for Netflix.
It’s a sharp turnaround from the powerful run Wall Street enjoyed after emerging from its last bear market in early 2020, at the start of the pandemic. Through it, the S&P 500 more than doubled, as a new generation of investors met seemingly every wobble with the rallying cry to “Buy the dip!”
“I think plenty of investors were scratching their heads and wondering why the market was rallying despite the pandemic,” Jacobsen said. “Now that the pandemic has hopefully mostly passed, I think a lot of investors are kicking themselves for not having gotten out on signs that the economy was probably slowing and the Fed was making its policy pivot.”
With inflation at its highest level in four decades, the Fed has aggressively flipped away from keeping interest rates super-low in order to support markets and the economy. Instead it’s raising rates and making other moves in hopes of slowing the economy enough to tamp down inflation. The worry is if it goes too far or too quickly.
“Certainly the market volatility has all been driven by investor concerns that Fed will tighten policy too much and put the U.S. into a recession,” said Michael Arone, chief investment strategist at State Street Global Advisors.
Bond yields fell as recession worries pushed investors into Treasurys and other things seen as safer. The yield on the 10-year Treasury note, which helps set mortgage rates, fell to 2.78% from 2.85% late Thursday.
Inflation has been painfully high for months. But the market’s worries swung higher after Russia’s invasion of Ukraine sent prices spiraling further at grocery stores and gasoline pumps, because the region is a major source of energy and grains. The world’s second-largest economy, meanwhile, has taken a hit as Chinese officials locked down key cities in hopes of halting COVID-19 cases. That’s all compounded with some disappointing data on the U.S. economy, though the job market remains hot.
Adding pressure onto stocks have been signs that corporate profits are slowing and may finally be getting hurt by inflation. That means the pain has widened beyond tech and high-growth stocks to encompass more of Wall Street.
Retail giants Target and Walmart both had warnings this week about inflation cutting into finances. Discount retailer Ross Stores sank 22.5% on Friday after cutting its profit forecast and citing rising inflation as a factor.
“The latest earnings from retail companies finally signaled that U.S. consumers and businesses are being negatively impacted by inflation,” Arone said.
Although its source is different, the gloom on Wall Street is mirroring a sense of exasperation across country. A poll from The Associated Press-NORC Center for Public Research released Friday found that only about 2 in 10 adults say the U.S. is heading in the right direction or the economy is good, both down from about 3 in 10 a month earlier.
Much of Wall Street’s bull market since early 2020 was the result of buying by regular investors, many of whom started trading for the first time during the pandic. Alongside many cryptocurrencies, they helped drive darlings like Tesla’s stock higher. They even got GameStop to surge suddenly to such a high level that it sent shudders through professional Wall Street.
But these traders, called “retail investors” by Wall Street to differentiate them from big institutional investors, have been pulling back as stocks have tumbled. Individual investors have turned from a net buyer of stocks to a net seller over the last six months, according to a recent report from Goldman Sachs.
Why is Wall Street close to a bear market? An explainer
Why is it called a bear market?
What’s bothering investors?
So, we just need to avoid a recession?
So I should sell everything now, right?
How long do bear markets last and how deep to they go?
How do we know when a bear market has ended?
Stocks waver on Wall Street, hover close to bear market
NEW YORK (AP) — Stocks wavered in afternoon trading on Wall Street Thursday as persistently high inflation continues to weigh on the economy and keeps major indexes mired in a deep slump.
The S&P 500, the benchmark for many index funds, is coming off of its biggest drop in nearly two years. It eased off an early stumble and was down 0.3%. It has fallen roughly 18% from the record high it set early this year. That’s just shy of the 20% point that defines a bear market.
The Dow Jones Industrial Average fell 142 points, or 0.5%, to 31,342 as of 3:23 p.m. Eastern and the Nasdaq rose 0.1%.
Rising interest rates, high inflation, the war in Ukraine and a slowdown in China’s economy have caused investors to reconsider the prices they’re willing to pay for a wide range of stocks, from high-flying tech companies to traditional automakers. Investors have been worried that the soaring inflation that’s hurting people shopping for groceries and filling their cars up is also walloping company profits.
Target fell another 4.9% a day after losing a quarter of its value on a surprisingly weak profit report.
Wall Street is also worried about the Federal Reserve’s plan to fight the highest inflation in four decades. The Fed is raising interest rates aggressively and investors are concerned that the central bank could cause a recession if it raises rates too high or too quickly.
The 10-year Treasury pulled back to 2.85% from 2.88% late Wednesday, but it has been generally rising as investors prepare for a market with higher interest rates. That has also pushed up mortgage rates, which is contributing to a slowdown in home sales.
The pile of concerns on Wall Street has made for very choppy trading and big swings between gains and losses within any given day.
Technology stocks have been some of the most volatile holdings. The sector includes heavyweights like Apple that have lofty valuations, which tend to push the market more forcefully up or down. The sector has been hit especially hard by the Fed’s policy shift to raise interest rates. Low rates help support investments considered more risky, like tech stocks, and higher rates lessen the incentive to take that risk.
Technology stocks fell Thursday, contributing to the choppy market. Cisco Systems slumped 14.3% after the seller of routers and switches cut its profit forecast amid supply chain constraints. Synopsis jumped 11.6% after the software company raised its financial forecasts for the year.
Household goods companies, grocery store operators and food producers fell broadly. General Mills fell 1.7% and Clorox fell 4.8%.
Retailers and other companies that rely on direct consumer spending were mostly higher. Amazon rose 0.8% and Expedia climbed 5.4%. Bath & Body Works slid 5.1% after cutting its profit forecast for the year.
With the S&P 500 little changed, the index remained close to, but in not moving decidedly in the direction of falling into, a bear market. The last bear market happened just two years ago, following the onset of the virus pandemic.
Why use a bear to denote a market slump? Bears hibernate, so they represent a market that’s retreating, said Sam Stovall, chief investment strategist at CFRA. In contrast, Wall Street’s nickname for a surging stock market is a bull market, because bulls charge.
Veiga reported from Los Angeles.
Podcast: Pennywise playlist