The S&P 500 fell in tumultuous trading Thursday as the benchmark battled to avoid a bear market. Investors continued to dump stocks for fear that Federal Reserve rate hikes to combat rapid inflation would send the economy into recession.
The broad market index fell 0.8%, about 19% below the intraday record set in January. It is also more than 18% below its record level. A close of 20% or more below its all-time high would mark a bear market, the first since the pandemic sell-off in March 2020.
The Dow Jones Industrial Average lost 348 points, or 1.1%, a day after experiencing its biggest one-day decline since 2020. The Nasdaq Composite was down 0.3%, though it fluctuated between gains and losses on Thursday.
“The most important thing for investors is to brace themselves for sustained volatility,” said Greg Bassuk, CEO of AXS Investments. “We believe volatility will be investors’ story for the second quarter balance and frankly, for the 2022 balance.”
On Wednesday, the Dow fell more than 1,100 points, marking its worst sell-off in nearly two years. The S&P 500 also suffered its worst one-day decline since June 2020, losing about 4%, and the Nasdaq Composite was down 4.7%.
Those losses were driven in part by successive quarterly reports from Target and Walmart showing higher fuel costs and subdued consumer demand that hurt results amid the highest inflation in decades. Even after dropping 24% on Wednesday, Target shares were down 2% again on Thursday.
“The sharp sell-off in these companies (and other commodity/consumer businesses this quarter) shows that inflationary pressures are finally impacting earnings,” Maneesh S. Deshpande, head of US equity strategy at Barclays, said in a statement. Thursday note. “Despite elevated inflation for a greater part of a year, [S&P 500] margins and future earnings have remained resilient, which no longer appears to be the case.”
Cisco was the last major company to pounce on the results, with the tech clock falling 13% on Thursday. Cisco said after the bell on Wednesday that quarterly revenue has fallen short of analyst expectations and warned that revenue in the current quarter would disappoint.
A rebound in some tech stocks boosted the S&P 500 and Nasdaq Composite several times during Thursday’s trading. Shares of Synopsys gained 11% on Thursday after the software company posted a profit margin. Shares of cloud company Datadog rose 11%.
Stocks have been under pressure throughout the year, with investors first turning away from high-value, low-profit technology stocks. But the sell-off has since spread to more sectors of the economy, including banks and retail, as growing fears of a recession deterred investors.
Several notable stocks in the S&P 500 hit new 52-week lows on Thursday. Target stocks are trading at lows not seen since November 2020. Walmart stocks are at their lowest point since July 2020. Shares of Bank of America stocks have fallen to their worst level since February 2021. Shares of Charles Schwab are at their lowest point since February 2021 Intel has fallen to a low since October 2017.
“The problem now is that there really doesn’t seem to be any hiding place,” wrote Jonathan Krinsky, chief market engineer at BTIG. On Wednesday, “came in for consumer names, but they still sold slowed growth. In other words, money rotates in cash rather than between different sectors.”
“Though it won’t be a straight line, [this] is confirmation that selling rallies in bear markets is much easier than buying dips,” Krinsky said.
Several Wall Street strategists have made gloomy forecasts for stocks if the Fed’s rate hikes send the economy into recession. GDP fell by 1.4% in the first quarter, so some slowdown is already visible.
Deutsche Bank lowered its official target for the S&P 500 overnight, but said a recession would mean even bigger losses.
“In the event that we enter a recession soon, we see that the market sell-off goes well beyond the average, i.e. into the upper half of the historical range and given the increased initial overvaluation, -35% to -40% or S&P 500 3000,” Binky Chadha, Deutsche Bank’s chief global strategist, wrote in a note.
At a Wall Street Journal conference earlier this week, Federal Reserve Chairman Jerome Powell reiterated his remarks that “there will be no hesitation whatsoever” in cutting inflation.
Meanwhile, weekly jobless claims in the US rose to 218,000 for the week ending May 14, the Labor Department said Thursday, the latest indication that economic growth is slowing.
The Dow has fallen for seven consecutive weeks, falling 14% in 2022. The Nasdaq is down 27% this year. The S&P 500 lost 18%.