Last-minute rally pulls Wall Street out of the jaws of the bear market – Press Enterprise

By DAMIAN J. TROISE and STAN CHOE

NEW YORK (AP) — Wall Street rumbled to the brink of a bear market Friday after another drop in stocks briefly sent the S&P 500 more than 20% below its high set earlier 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 rally in the last hour of trading sent it to a small gain of less than 0.1% It finished 18.7% below its record, set on January 3. The tumultuous trading capped a seventh straight week of losses, its longest streak since the dot-com bubble deflated in 2001.

Rising interest rates, high inflation, the war in Ukraine and a slowing Chinese economy are hurting stocks and raising fears of a possible US recession. has flown to the rescue of Wall Street in the most recent recessions, the Federal Reserve seems less likely to help as it is battling the worst inflation in decades.

The S&P 500 ended the day 0.57 point higher at 3,901.36. The Dow Jones Industrial Average went from an initial 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.

Because the S&P 500 did not end the day more than 20% below its record, the company that runs 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 doesn’t 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, considered some of the most vulnerable to rising interest rates, are already down well over 20% this year. That includes a 37.2% drop for Tesla and a plummeting 69.1% drop for Netflix.

It’s a sharp turnaround from the mighty streak Wall Street enjoyed after emerging from its last bear market in early 2020, at the start of the pandemic. Through him, the S&P 500 more than doubled, as a new generation of investors seemingly met every wobble with the rallying cry “Buy the dip!”

“I think a lot of investors were scratching their heads and wondering why the market was recovering despite the pandemic,” Jacobsen said. “Now that the pandemic is hopefully mostly over, I think a lot of investors are criticizing themselves for not picking up on the signs that the economy was probably slowing down and the Fed was changing its mind. politics”.

With inflation at its highest level in four decades, the Fed has moved aggressively away from keeping interest rates super low to support the markets and the economy. Instead, it is raising rates and taking other steps in hopes of slowing the economy enough to control inflation. The concern is if it goes too far or too fast.

“Certainly the market volatility has been driven by investor concerns that the Fed will tighten policy too much and put the US into a recession,” said Michael Arone, chief investment strategist at State Street Global Advisors.

Bond yields fell as recession worries pushed investors into Treasuries and other things that were considered safer. The yield on the 10-year Treasury note, which helps set mortgage rates, fell to 2.78% from 2.85% on Thursday night. Goldman Sachs economists recently estimated the probability of a US recession in the next two years to be 35%.

Inflation has been painfully high for months. But market concerns increased after the Russian invasion of Ukraine sent prices higher at grocery stores and gas stations, because the region is a major source of energy and grain. Meanwhile, the world’s second-largest economy has taken a hit as Chinese officials locked down key cities in hopes of stemming COVID-19 cases. All of that is compounded by some disappointing data on the US economy, although the labor market is still active.

Signs that corporate profits are slowing and may finally be hit by inflation have added pressure on stocks. That means the pain has broadened beyond high-growth and tech stocks to encompass more of Wall Street.

Retail giants Target and Walmart warned this week that inflation would hit 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 indicated that US consumers and businesses are being hit hard by inflation,” Arone said.

Although its origin is different, the pessimism on Wall Street reflects a sense of exasperation throughout the country. An Associated Press-NORC Center for Public Research poll released Friday found only about 2 in 10 adults say the US is headed in the right direction or the economy is good, both below 3 of 10 of the previous month.

Much of Wall Street’s bull market since early 2020 was the result of buying by regular investors, many of whom first started trading during the pandemic. Along with many cryptocurrencies, they helped boost the shares of darlings like Tesla. They even got GameStop to skyrocket to a level so high it gave Wall Street professionals the shivers.

But these traders, called “retail investors” by Wall Street to distinguish them from large institutional investors, have pulled back as stocks have fallen. Individual investors have gone from being net buyers of shares to net sellers in the last six months, according to a recent report from Goldman Sachs.

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