Thursday, the S&P 500 goes down again, getting closer to a bear market.
Thursday, the S&P 500 dropped, and the benchmark moved closer to a bear market. Investors kept selling stocks because they were afraid that the Federal Reserve’s plan to raise interest rates to fight high inflation would cause the economy to fall into a recession.
After falling 4% on Wednesday, the broad market index fell another 0.58 percent to 3,900.79. The index is about 19% below its all-time high from January, which puts it on the edge of a bear market.
The Dow Jones Industrial Average fell 236.94 points, or 0.75 percent, to 31,253.13. This happened a day after it also lost 1,164 points in one day, which was the biggest drop since 2020. The Nasdaq Composite fell by 0.26 percent to 11,388.50, after falling by 4.7% on Wednesday.
Greg Bassuk, CEO of AXS Investments, said, “The main lesson for investors is to be ready for more volatility for a while.” “We think that investors will be talking about volatility for the rest of Q2 and, well, for the rest of 2022.”
Both the S&P 500 and the Nasdaq are down more than 3% for the week, while the Dow is down 2.9%. Part of what caused these losses was back-to-back quarterly reports from Target and Walmart, which showed that higher fuel costs and less demand from customers were hurting results at a time when inflation was at its highest level in decades. Even though Target shares fell by 24% on Wednesday, they fell by 5.1% again on Thursday.
“The sharp sell-off in these companies (and other goods/consumer companies this quarter) shows that inflationary pressures are finally having an effect on earnings,” Maneesh S. Deshpande, head of U.S. equity strategy at Barclays, said in a note on Thursday. “Despite higher inflation for a good part of a year, [S&P 500] margins and future earnings have stayed strong, but that doesn’t seem to be the case anymore.”
Cisco was the latest big company to fall because of its results. On Thursday, the tech giant fell by 13.7%. Cisco said after the bell on Wednesday that its quarterly sales fell short of what analysts had expected, and it warned that sales for the next quarter would also fall short.
In the other hand, some tech stocks went up again, which helped the S&P 500 and the Nasdaq Composite at different times during trading on Thursday. Shares of software company Synopsys went up by 10.3% on Thursday after the company beat its earnings forecast. Shares of the cloud company Datadog went up by 9.6%.Thursday, Nvidia and Amazon also got close to being in the black.
Stocks have been under pressure all year, and investors first moved away from expensive tech stocks that didn’t make much money. But since then, the sell-off has spread to more parts of the economy, such as banks and stores, as investors became more worried about a recession.
On Thursday, a number of well-known stocks in the S&P 500 fell to new 52-week lows. Target stock is trading at prices that haven’t been this low since November 2020. The price of Walmart shares is at its lowest level since July 2020. Bank of America and Charles Schwab’s stocks fell to their lowest point since February 2021. Intel stock has hit lows that haven’t been seen since October 2017.
“The problem now is that it seems like there’s nowhere to hide,” BTIG’s chief market technician, Jonathan Krinsky, wrote. On Wednesday, he said, “They came for consumer names, but they still sold beaten-down growth. In other words, money is moving into cash instead of from one sector to another.”
Krinsky said, “It won’t be a straight line, but this shows that it’s much easier to sell rallies in bear markets than to buy dips.”
Several Wall Street strategists gave very bad predictions for stocks if the Fed’s rate hikes caused a recession. GDP fell by 1.4% in the first quarter, so things are already starting to slow down.
Deutsche Bank cut its official goal for the S&P 500 overnight, but said that a recession would bring even bigger losses.
In a note, Binky Chadha, the chief global strategist at Deutsche Bank, said, “If we slide into a recession soon, we see the market selling off much more than average, i.e., into the upper half of the historical range, and given the high initial overvaluation, -35% to -40% or S&P 500 3000.”
This week, Federal Reserve Chair Jerome Powell said again at a Wall Street Journal conference that “there won’t be any hesitation” to bring down inflation.
The Labor Department said Thursday that the number of weekly jobless claims in the U.S. rose to 218,000 for the week ending May 14. This is another sign that economic growth is slowing.