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Stocks Close Friday Near Bear Market 05/20 15:51
Wall Street rumbled to the edge of a bear market Friday after another drop
for stocks briefly sent the S&P 500 more than 20% below its peak set early this
year.
NEW YORK (AP) -- Wall Street rumbled to the edge of a bear market Friday
after another drop for stocks briefly sent the S&P 500 more than 20% below its
peak set early 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 comeback in the final
hour of trading sent it to a tiny gain of less than 0.1%. It finished 18.7%
below its record, set on Jan. 3. The tumultuous trading capped a seventh
straight losing week, its longest such streak since 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
U.S. recession. Compounding worries is how the superhero that's flown to Wall
Street's rescue in the most recent downturns, the Federal Reserve, looks less
likely to help as it's stuck battling the worst inflation in decades.
The S&P 500 finished the day up 0.57 points at 3,901.36. The Dow Jones
Industrial Average swung from an early 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 finish the day more than 20% below 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 does not 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, seen as some of the most vulnerable to rising interest
rates, have already fallen much more than 20% this year. That includes a 37.2%
tumble for Tesla and 69.1% nosedive for Netflix.
It's a sharp turnaround from the powerful run Wall Street enjoyed after
emerging from its last bear market in early 2020, at the start of the pandemic.
Through it, the S&P 500 more than doubled, as a new generation of investors met
seemingly every wobble with the rallying cry to "Buy the dip!"
"I think plenty of investors were scratching their heads and wondering why
the market was rallying despite the pandemic," Jacobsen said. "Now that the
pandemic has hopefully mostly passed, I think a lot of investors are kicking
themselves for not having gotten out on signs that the economy was probably
slowing and the Fed was making its policy pivot."
With inflation at its highest level in four decades, the Fed has
aggressively flipped away from keeping interest rates super-low in order to
support markets and the economy. Instead it's raising rates and making other
moves in hopes of slowing the economy enough to tamp down inflation. The worry
is if it goes too far or too quickly.
"Certainly the market volatility has all been driven by investor concerns
that Fed will tighten policy too much and put the U.S. into a recession," said
Michael Arone, chief investment strategist at State Street Global Advisors.
Bond yields fell as recession worries pushed investors into Treasurys and
other things seen as safer. The yield on the 10-year Treasury note, which helps
set mortgage rates, fell to 2.78% from 2.85% late Thursday.
Inflation has been painfully high for months. But the market's worries swung
higher after Russia's invasion of Ukraine sent prices spiraling further at
grocery stores and gasoline pumps, because the region is a major source of
energy and grains. The world's second-largest economy, meanwhile, has taken a
hit as Chinese officials locked down key cities in hopes of halting COVID-19
cases. That's all compounded with some disappointing data on the U.S. economy,
though the job market remains hot.
Adding pressure onto stocks have been signs that corporate profits are
slowing and may finally be getting hurt by inflation. That means the pain has
widened beyond tech and high-growth stocks to encompass more of Wall Street.
Retail giants Target and Walmart both had warnings this week about inflation
cutting into 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 signaled that U.S.
consumers and businesses are being negatively impacted by inflation," Arone
said.
Although its source is different, the gloom on Wall Street is mirroring a
sense of exasperation across country. A poll from The Associated Press-NORC
Center for Public Research released Friday found that only about 2 in 10 adults
say the U.S. is heading in the right direction or the economy is good, both
down from about 3 in 10 a month earlier.
Much of Wall Street's bull market since early 2020 was the result of buying
by regular investors, many of whom started trading for the first time during
the pandic. Alongside many cryptocurrencies, they helped drive darlings like
Tesla's stock higher. They even got GameStop to surge suddenly to such a high
level that it sent shudders through professional Wall Street.
But these traders, called "retail investors" by Wall Street to differentiate
them from big institutional investors, have been pulling back as stocks have
tumbled. Individual investors have turned from a net buyer of stocks to a net
seller over the last six months, according to a recent report from Goldman
Sachs.
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