Rising recession fears sent US stocks briefly bearish on Friday, with the S&P 500 falling to a 20% point from its all-time high in January. A dramatic turn late in the day pushed the benchmark slightly into the green at the closing bell for the day.
The S&P 500 closed 0.01% higher at 3,901.36 on Friday after falling as much as 2.3% at the start of the session. At daily lows, the S&P 500 was 20.9% below its intraday high in January. The index closed about 19% below its record.
There is no official bear market term on Wall Street. Some will view Friday’s drop to intraday lows as confirmation of a bear market, while some strategists might say it’s not official until it closes 20% below its high. Regardless, it’s the biggest downturn of this magnitude since the March 2020 rapid bear market at the start of the pandemic.
“Stocks are still generously valued and the psychology that drove them higher for a decade has turned negative,” wrote George Ball, chairman of investment firm Sanders Morris Harris. “The average bear market lasts a year (338 days to be precise). This downturn has only been a third of that, so it probably has more room downside, albeit punctuated by intermittent rallies.”
The Dow Jones Industrial Average rose 8.77 points to 31,261.90 after falling more than 600 points from daily lows. The Nasdaq Composite fell 0.3% and is already deep in bear market territory, 30% off its highs.
This week, the Dow is down 2.9% for its first eight-week losing streak since 1923. The S&P 500 is down 3% this week, while the Nasdaq is down 3.8% — both posting seven-week losing streaks.
“This week’s decline felt like the market was recognizing that earnings growth and profitability for the S&P 500 could be at risk as inflation looks set to be higher throughout the year,” wrote David Wagner, portfolio manager at Aptus Capital Advisors .
The S&P 500’s biggest losers during the bear market
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The S&P 500’s brief tumble into the bear market comes as the US grapples with inflationary pressures not seen in decades. These were exacerbated by a surge in energy prices – exacerbated in large part by the start of the war between Ukraine and Russia.
The surge in inflation then prompted the US Federal Reserve to raise interest rates in March for the first time in more than three years. Earlier this month, the central bank became even more aggressive, raising interest rates by half a percentage point.
Initially, the sell-off losses were concentrated in highly valued growth and technology stocks. However, the drawdown eventually spread to other parts of the market. As of Friday’s close, energy was the only positive S&P 500 sector year to date.
Biggest Nasdaq losers in bear market
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Then this week, poor earnings reports and forecasts from Walmart and Target raised concern about companies’ ability to deal with inflation and consumers’ willingness to pay higher prices — putting even more pressure on the S&P 500.
“Eventually the market will turn, but not until the tide changes, inflation eases and consumers feel comfortable about going back to spending the way they want and are used to. Those are pretty long cycles,” said Johan Grahn, head of ETF strategy at Allianz Investment Management.
The March 2020 bear market lasted just 33 days before the S&P 500 returned to record highs as investors bet on internet companies that have thrived during the pandemic.
Wall Street continued to dump shares of semiconductor stocks on Friday on recession fears and as Applied Materials cut its forecast. Applied Materials, a maker of chipmaking equipment, fell 3.9%. Shares of Nvidia and Advanced Micro Devices fell 2.5% and 3.3%, respectively.
Elsewhere, shares of Deere fell 14% after the heavy equipment maker reported a drop in sales. Caterpillar’s shares fell more than 4%. Industrial companies like Deere and Caterpillar are seen as barometers for the global economy.
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The Fed has signaled that it will continue raising interest rates to ease the recent surge in inflation. Earlier in the week, Chairman Jerome Powell said: “If that means going beyond commonly understood levels of neutrality, then we will have no hesitation in doing so.”
This tough stance on monetary policy has fueled concerns this week that the Fed’s actions could plunge the economy into recession. On Thursday, Deutsche Bank said the S&P 500 could drop to 3,000 if a recession looms.
According to Sam Stovall, Chief Investment Strategist at CFRA Research, “There’s a chance we’ll see this bear market bottom in the top 20% area, below a bear market of less than 30%.”
– CNBC’s Jeff Cox, Jesse Pound and Samantha Subin contributed to this report.
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Correction: The Dow was on course for its first eight-week losing streak since 1923. An earlier version got the year wrong.