S&P 500 confirms bear market as recession worry grows

It was the third consecutive day of a major rout that began Thursday as investors braced for a bad inflation report and then went into hyperdrive on Friday when the report came in even worse than feared, in fact much worse than feared. Today saw continued fallout from Friday’s panic with the S&P finally falling into bear territory after weeks of flirting with it, and the Nasdaq confirming the bear months ago.  So the Dow is the lone holdout, though it’s going fast having lost about 2500 points in the last three sessions.  But today’s expert tried to stay positive, “The silver lining in all of this is that the more pessimism that abounds, the more potential there is for upside.”  

Another expert opined, “This is a market that does not look like it’s capitulating so much as it’s frustrated.” But uncertainty abounds and the consensus seems to be that until something changes direction – the Fed, the war, the supply chain, inflation – stocks are also unlikely to change direction.  And these changes may be a while coming.  One final positive thought amidst all this bad news, “Even with some of the securities being thrown out, it is just not deep enough that people have taken positions off.”  All three of these sentiments are probably true.  Volume was way above average at 15.2 billion. 

June 13, 2022  5:41 PM

S&P 500 confirms bear market as recession worry grows

By Caroline Valetkevitch

DJ: 31,392.79  -880.00        NAS:  11,340.02  -414.20        S&P: 3,900.86  -116.96    6/10

DJ: 30,516.74  -876.05        NAS: 10,809.23  -530.80         S&P: 3,749.63  -151.23    6/13

 

NEW YORK, June 13 (Reuters) - The S&P 500 (.SPX) ended more than 20% below its Jan. 3 record closing high on Monday, confirming a bear market for the benchmark as investors sold stocks amid worries over whether the Federal Reserve will be able to tame inflation without triggering a recession.  A close of more than 20% below the record high confirms that the index is in a bear market, according to a commonly used definition. It is the first time the S&P 500 has confirmed a bear market since the 2020 Wall Street plunge brought on by the COVID-19 pandemic.

Stocks have been volatile since the start of the year, with Russia's invasion of Ukraine in late February taking a heavy toll on markets.  But increasing worries about inflation and the U.S. central bank's monetary policy tightening as it attempts to quell it have fueled much of the recent sell-off.  Major U.S. stock indexes on Friday posted their biggest weekly percentage declines since January and ended sharply lower after a report showed a steeper-than-expected rise in U.S. consumer prices in May. read more  "My view is that we won't really see a turnaround for the stock market until we see some kind of pivot from the Fed. And by that I mean getting a little less aggressive, which I know is going to take time because right now the trajectory is to get more aggressive," said Kristina Hooper, chief global market strategist at Invesco in New York.  "The silver lining in all of this is that the more pessimism that abounds, the more potential there is for upside," Hooper said.

The S&P 500 closed Monday at 3,749.63, down 3.9% on the day and 21.8% below its Jan. 3 record closing high of 4,796.56.

The Fed is expected to hike interest rates by 50 basis points when it concludes its two-day meeting on Wednesday, and expectations for a hike of 75 basis points at the June meeting have jumped to nearly 30% from 3.1% a week ago, according to CME's Fedwatch Tool.  One worry is that an aggressive push higher on rates by the Fed could send the economy into recession.  This year's downturn is a pivotal shift for the market after its swift and strong post-pandemic rally. The S&P 500 rose 114.38% from its closing low on March 23, 2020, to its Jan. 3 record closing high this year. read more

"The reason why the market is not bottoming, we think, is because there still remains a ton of uncertainty. And because of that, it's likely that it's going to be extremely choppy here," said King Lip, chief investment strategist at Baker Avenue Asset Management in San Francisco.  The Nasdaq (.IXIC) earlier this year confirmed that it was in bear market territory, the first of the three major U.S. indexes to hit such levels. 

"The market had been trying to rally around the idea that inflation has peaked, and the Fed would not have to be more aggressive," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.  "That story fell apart on Friday with the CPI report, showing broad inflation being entrenched everywhere you look."

S&P 500 (.SPX) lost 149.91 points, or 3.85%, to end at 3,750.95 points, while the Nasdaq Composite (.IXIC) lost 526.82 points, or 4.65%, to 10,813.20. The Dow Jones Industrial Average (.DJI) fell 857.70 points, or 2.73%, to 30,535.09.

 

In addition, the two-year 10-year U.S. Treasury yield curve briefly inverted for the first time since April, which many in the markets see as a reliable signal that a recession could come in the next year or two. read more  The CBOE Volatility index (.VIX), also known as Wall Street's fear gauge, spiked to its highest level since May. Still, many analysts view the level as subdued and could mean more selling pressure is in store.  "This is a market that does not look like it is capitulating as much as it is frustrated," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle.  "Even with some of the securities being thrown out, it is just not deep enough, violent enough to see that people have taken positions off.

Per the CBOE, volume was way above average at 15.2 billion.