S&P 500 falls into bearish territory; The stock market sell-off continues

A week-long selloff took on new intensity on Friday, sending the S&P 500 into bearish territory for the first time since the pandemic-induced 2020 selloff.

The shares rose at the open, then reversed course, falling throughout the session. The S&P 500 fell 1.8%, on course to close at least 20% below its January peak. The Dow Jones Industrial Average fell about 467 points, or 1.5%, to 20801. The technology-focused Nasdaq Composite lost 2.6%.

It has been decades since stocks fell for such an extended period. Dow industrialists are heading for their eighth straight weekly loss, their longest streak since 1932, near the peak of the Great Depression. The S&P 500 and Nasdaq are on track for their longest streak of weekly losses since 2001, after the dotcom bubble burst.

Investors say driving the sell-off is growing fear of the health of the US and global economy. Fund managers spent the first few months of the year worrying that the Federal Reserve’s interest rate hikes would weigh heavily on expensive stocks that had fueled the remarkable market rally in recent years. Investors fled tech company stocks, pulling billions of dollars out of funds following the Nasdaq. Higher interest rates tend to blunt the appeal of companies that expect to generate big profits years later.

This week, the pain has spread far beyond the tech sector, alarming many investors. Major retailers reported that their profits had been hit by rising costs and supply chain disruptions, leading to a sell-off that led to Target and

walmartit is

worst one-day drop since the Black Monday crash of 1987. As investors took stock of how inflationary pressures and slowing growth could weigh on corporate earnings in the months ahead, stocks everything from banks to real estate investment trusts to grocery store chains fell, too.

The ferocity of the sell-off sent investors and analysts a strong message that there are few, if any, safe parts of the stock market this year. On Friday, even shares of energy companies, which have benefited from soaring oil prices, fell in line with the broader market.

“It’s clear that in a very short period of time, we’ve gone from a pandemic, to fear of inflation, to now, serious worries about growth,” said Brian Levitt, global markets strategist at Invesco.

Goldman Sachs economists estimate that there is a 35% chance that the US economy will enter a recession within the next two years. Economic downturns have always been bad news for stocks: since World War II, the S&P 500 has fallen an average of 30% from peak to trough during recessions.

Until the Fed convinces investors it can tighten monetary policy and rein in inflation without triggering a downturn, markets are unlikely to stabilize, analysts said. The central bank’s job will be made more difficult by factors beyond its control that have added to inflationary pressures this year, including China’s zero Covid policy and Russia’s invasion of Ukraine.

“We still need to gather more evidence to convince the markets that a soft landing is possible,” said Arun Sai, multi-asset strategist at Pictet Asset Management.

Government bonds rallied on Friday, benefiting from an influx of investors into assets that tend to perform well in times of economic stress. The yield on the benchmark 10-year U.S. Treasury fell to 2.795% on Friday from 2.854% on Thursday, heading for a third straight day of declines. Bond prices rise when yields fall.

Meanwhile, disappointing earnings results led to outsized moves in some stocks.

Shares of

Ross Stores

dropped 24% after release a drop in sales and said it expects a further decline in sales for the current quarter. The retailer, like many other businesses, said its results were hurt by rising transportation and labor costs.

Agricultural equipment manufacturer

Deere

fell 15% even though it posted increased sales and profits and raised its profit forecast for the year. The company said supply chain issues have disrupted production levels and deliveries, and rising costs for transporting materials and goods are squeezing its profit margins.

Most S&P 500 companies managed to produce earnings this quarter that beat expectations, said Kiran Ganesh, multi-asset strategist at UBS.

What is less clear is how companies will fare in the coming months.

“The question is from the next quarter, when we will have the full impact of the oil price spike and the war in Ukraine,” Ganesh said.

A trader worked on the floor of the New York Stock Exchange on Thursday.


Photo:

Seth Wenig/Associated Press

Brent crude, the global energy benchmark, ended Friday up 51 cents a barrel, or 0.5%, at $112.55. Bitcoin, the world’s largest cryptocurrency, fell around 5% to $28,734. The currency’s price has fallen nearly 58% since its all-time high in November. Overseas, the Stoxx Europe 600 gained 0.7%. Asian stocks also rose, with the Shanghai Composite climbing 1.6% and Hong Kong’s Hang Seng 3%. Write to Akane Otani on akane.otani@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

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