NEW YORK (AP) – Wall Street slips to the brink of a bear market The S&P 500 was more than 20% below its peak set at the start of the year after stocks fell again on Friday.
The S&P 500, which is at the heart of most workers’ 401(k) accounts, fell 2.3% before rebounding sharply in the final hour of trading, putting it up just under 0.1%. It closed 18.7% below the record set on Jan. 3. Turbulent trading ended a seventh straight weekly loss, the longest losing streak since the dot-com bubble burst in 2001.
interest rates risehigh inflationukraine warand the slowdown in the Chinese economy Both are punishing stocks and raising fears of a possible U.S. recession. More worryingly, the Fed, the superhero that flew to Wall Street’s rescue in the latest recession, seems unlikely to help, as it battles the worst inflation in decades.
The S&P 500 closed the day up 0.57 point at 3,901.36. The Dow Jones Industrial Average fell to 31,261.90 from 617 in early trade, closing up 8.77 points, or less than 0.1%. The Nasdaq Composite closed down 33.88 points, or 0.3 percent, at 11,354.62.
With the S&P 500 not closing the day more than 20% below its record, the company responsible for the index said the bear market had not officially begun. Of course, the 20% threshold is an arbitrary number.
“It doesn’t matter if the S&P 500 closes in a bear market,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “It’s been through a lot of pain.”
Many of the big tech stocks seen as most vulnerable to rising interest rates have fallen more than 20% this year. These included Tesla’s 37.2% plunge and Netflix’s 69.1% plunge.
It’s a sharp turnaround from the strong performance Wall Street has enjoyed since the last bear market at the start of the pandemic in early 2020. Through it, the S&P 500 more than doubled as a new generation of investors seemed to encounter every swing that was accompanied by a “buy the dip!” call.
“I think a lot of investors are scratching their heads and wondering why the market is going up despite the pandemic,” Jacobson said. “Now that the pandemic is hopefully largely over, I think a lot of investors are stumped because they haven’t. Get rid of the signs that the economy may be slowing and the Fed is pivoting its policy.”
With inflation at its highest level in 40 years, the Federal Reserve has aggressively given up on keeping interest rates ultra-low to support markets and the economy. Instead, it is raising interest rates and taking other steps in an attempt to slow the economy enough to keep inflation in check. The worry is whether it goes too far or too fast.
“Certainly, market volatility is driven by investor fears that the Fed will over-tighten policy and tip the U.S. into recession,” said Michael Arone, chief investment strategist at State Street Global Advisors.
Bond yields fell as recession fears pushed investors to U.S. Treasuries 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. Goldman Sachs economists recently put the probability of a U.S. recession at 35% in the next two years.
Inflation has been high for months. But worries rose after Russia’s invasion of Ukraine caused a further spike in grocery store and gasoline pump prices, as the region is a major source of energy and grains. Meanwhile, the world’s second-largest economy took a hit as Chinese officials locked down major cities in hopes of stemming COVID-19 cases. While the job market remains hot, some disappointing data from the U.S. economy has complicated it all.
Adding to the pressure on the stock market, there are signs that corporate profits are slowing and could eventually be hurt by inflation. That means the pain has spread from tech and high-growth stocks to more areas of Wall Street.
retail giant target and Walmart Both warned this week that inflation could affect finances. Discount retailer Ross Stores fell 22.5% on Friday after it cut its profit forecast and cited rising inflation as a factor.
“The latest earnings reports from retail companies finally show that U.S. consumers and businesses are being negatively impacted by inflation,” Arone said.
Although its origins vary, the pessimism on Wall Street mirrors the outrage across the country.polls Data released Friday by the Associated Press-NORC Center for Public Research found that only about two in 10 adults said the U.S. was heading in the right direction or that the economy was doing well, both down from about a month ago. three out of ten.
Much of Wall Street’s bull run since the start of 2020 has been the result of buying by ordinary investors, many of whom first started trading during the pandemic. In addition to many cryptocurrencies, they have also helped push darlings like Tesla stock higher. They even had GameStop suddenly soaring to such high levels that it made professional Wall Street shudder.
But these traders, dubbed “retail investors” by Wall Street to differentiate themselves from large institutional investors, have been retreating as the stock market tumbled. Over the past six months, individual investors have shifted from net buyers of stocks to net sellers, according to a recent report from Goldman Sachs.