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Friday, December 02, 2022

Last hour rally turns Wall Street away from bear market

Financial Markets Wall Street 63804 1

By Damien J Trois and Stan Choi

NEW YORK (AP) – Wall Street fell on the edge of a bear market on Friday, after another drop for stocks sent the S&P 500 down more than 20% from its peak set earlier this year.

The S&P 500 index, which sits at the center of most workers’ 401(k) accounts, was down as much as 2.3% for the day before a furious return in the final hours of trading, sending it to a small gain of less than 0.1. Was. , It ended 18.7% down from its record, which was set on January 3. The turbulent trading capped a seventh straight losing week, its longest streak since the deflation of the dot-com bubble in 2001.

Rising interest rates, high inflation, the war in Ukraine and a slowdown in China’s economy are all punishing stocks and raising fears about a possible US recession. Complicating concerns is that the superhero flying to the rescue of Wall Street in the recent recession is less likely to help the Federal Reserve as it grapples with the worst inflation in decades.

The S&P 500 ended the day up 0.57 points at 3,901.36. The Dow Jones Industrial Average closed 8.77 higher, or 0.1% lower at 31,261.90, from an opening loss of 617 points. The Nasdaq Composite was down 33.88 points, or 0.3%, at 11,354.62.

Since the S&P 500 ended the day no more than 20% off its record, the company in charge of 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.”

Several big tech stocks, considered the most vulnerable to rising interest rates, have already fallen more than 20% this year. This includes a drop of 37.2% for Tesla and 69.1% for Netflix.

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This marks a sharp turn from Wall Street’s powerful run since emerging from its last bear market in early 2020, at the start of the pandemic. Through it all, the S&P 500 more than doubled, as a new generation of investors began to “buy the dip!”

“I think a lot of investors were scratching their heads and wondering why the market was bullish despite the pandemic,” Jacobsen said. “Now that the pandemic has passed more than expected, I think a lot of investors are kicking themselves because there is no indication that the economy was probably slowing and the Fed is making its policy pivot.”

With inflation at its highest level in four decades, the Fed has aggressively shied 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 to contain inflation. The concern is if it goes too far or too quickly.

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

Bond yields fell as recession concerns led investors to consider Treasuries and other things safer. The yield on the 10-year Treasury note, which helps determine mortgage rates, fell from 2.85% late Thursday to 2.78%. Economists at Goldman Sachs recently put the likelihood of a US recession over the next two years at 35%.

Inflation has been very high for months. But market concerns were heightened after Russia’s invasion of Ukraine, as prices at grocery stores and gasoline pumps rose further, as the region is a major source of energy and grain. Meanwhile, the world’s second-largest economy has suffered a setback as Chinese authorities lock down major cities in hopes of curbing COVID-19 cases. It’s all complicated with some disappointing data on the US economy, although the job market remains hot.

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Increasing pressure on stocks is a sign that corporate profits are slowing down and may ultimately be hurt by inflation. That means the pain has moved beyond tech and high-growth stocks to include Wall Street more.

Retail giants Target and Walmart both warned this week about a cut in inflation in finance. Discount retailer Ross Stores posted a 22.5% drop on Friday after cutting its profit forecast and citing rising inflation as a factor.

“The latest earnings from retail companies ultimately indicate that inflation is having a negative impact on American consumers and businesses,” Aaron said.

Although its source differs, the gloom on Wall Street is mirroring a sense of outrage across the country. A poll by the Associated Press-NORC Center for Public Research, released Friday, found that only 2 in 10 adults say the US is headed in the right direction or that the economy is good, both from nearly 3 in 10 a month ago. are below.

Much of Wall Street’s bull run since the beginning of 2020 was the result of buying by regular investors, many of whom first started trading during the pandemic. As with many cryptocurrencies, they helped drive loved ones like Tesla’s stock. Even GameStop was found to suddenly rise to such high levels that it sent shivering through professional Wall Street.

But these traders, called “retail investors” by Wall Street, are pulling back as stocks plunged, to differentiate them from larger institutional investors. According to a recent report by Goldman Sachs, individual investors have gone from being a net buyer of shares to a net seller in the past six months.

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