The S&P500 rose on Thursday, pushing the average to the edge of a bear market, as investors continued to dump stocks on fears that a Fed rate hike to combat rapid inflation could push the economy into recession.
The broad market index fell 0.4%, bringing it about 19% below its intraday record set in January. It is also below the record closing level by more than 18%. A close of 20% or more below all-time highs would signal a bear market, the first since the pandemic sell-off in March 2020.
The Dow Jones Industrial Average was down 362 points, or 1.2%, a day after it suffered its biggest one-day drop since 2020. The Nasdaq Composite Index rose, although it swung back and forth between gains and losses Thursday morning.
“The main goal for investors is to prepare for extended volatility,” said Greg Pasock, chief executive officer at AXS Investments. “We think the volatility is going to be the investor’s narrative for the second quarter balance, and frankly, you know, for the 2022 balance.”
On Wednesday, the Dow plunged more than 1,100 points, posting its worst sell-off in nearly two years. The S&P 500 also suffered its worst one-day decline since June 2020, losing about 4%, and the Nasdaq Composite fell 4.7%.
Those losses were partly driven by back-to-back quarterly reports from Target and Walmart that showed rising fuel costs and restraining consumer demand hurt results amid the sharpest inflation in decades. Even after dropping 24% on Wednesday, target stocks fell again on Thursday by 2%.
Manish S. said: Thursday note. “Despite rising inflation for the better part of the year, [S&P 500] Margins and forward earnings have remained resilient, and that doesn’t seem to be the case anymore.”
Cisco was the latest major company to dip in results with its tech leadership dropping 13% on Thursday. Cisco said after the bell on Wednesday that quarterly revenue did not live up to analyst expectations and warned that revenue will be disappointing in the current quarter.
Stocks have been under pressure throughout the year, as investors first moved away from high-value technology stocks with few dividends. But the sell-off has since spread to more sectors of the economy, including banking and retail, where rising fears of a recession have spooked investors.
“The problem now is that there is nowhere to hide,” Jonathan Krinsky, chief market technician at BTIG, wrote. On Wednesday, they “came in for consumer names, but they still sold battered growth. In other words, money turns into cash instead of rotating between different sectors.”
While it would not be a straight line, [this] It is an affirmation that selling rallies in bear markets is much easier than buying dips,” Kreinsky said.
Several Wall Street strategists have issued some poor forecasts for stocks if the Fed’s hikes push the economy into a recession. GDP in the first quarter fell by an average of 1.4%, so some slowdown has already been observed.
Deutsche Bank lowered its official target for the S&P 500 overnight, but said a recession would lead to bigger losses.
“In the event of slipping into an imminent recession, we see market sell-offs beyond the mean, i.e. to the upper half of the historical range and due to a high initial valuation appreciation, from -35% to -40% or S&P 500 3000,” Pinky Shada wrote, Chief global strategist at Deutsche Bank in a note.
During a conference in the Wall Street Journal earlier this week, Federal Reserve Chairman Jerome Powell reiterated his comments that “there would be no hesitation” to cut inflation.
Meanwhile, weekly jobless claims in the United States rose to 218,000 for the week ending May 14, the Labor Department said Thursday, in the latest hint of slowing economic growth.
The Dow has fallen for seven consecutive weeks and is down 14% in 2022. The Nasdaq is down 27% this year. The S&P 500 lost 18%.