Wall Street Approaches Bear Market at the End of a Tough Week

Stocks are falling on Wall Street again on Friday and are headed for another week of declines after a massive pullback two days ago.

NEW YORK (AP) — Another drop in stocks on Friday has the S&P 500 flirting with a 20% drop from its high set earlier this year, putting it within reach of what Wall Street calls a bear market.

The index that is at the heart of most workers’ 401(k) accounts was down 0.4% on the day in afternoon trading and on track for its seventh consecutive losing week, which would be the most long since 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 Wall Street’s rescue in the most recent downturns, the Federal Reserve seems less likely to help as it is battling the worst inflation in decades.

If the S&P 500 ends the day 20% or more below its record, it would mark the first bear market since early 2020, when the pandemic triggered an unusually short recession that shrank the S&P 500 34% lower. strong run where the S&P 500 more than doubled, attracting a new generation of investors who seemingly responded to 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 going up despite the pandemic,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “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.

The S&P 500 was down 0.4%, with 20 minutes left in the trading day, or 19% below its record set on January 3. Earlier that day, it was down more than 20%. The Dow Jones Industrial Average fell 364 points, or 1.2%, to 30,888 and the Nasdaq was down 2%.

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.

Inflation has been painfully high for months. But market concerns increased further 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. Retail giants Target and Walmart warned this week that inflation would hit finances. Discount retailer Ross Stores plunged nearly 23% on Friday after cutting its profit forecast and citing rising inflation as a factor.

“The latest earnings from retail companies finally signaled 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.

Robinhood Markets, whose easy-to-use trading app helped attract millions of new investors, has seen its huge revenue growth reverse amid fewer transactions by nervous customers, particularly those with smaller balances.

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