The S&P 500 sits on the precipice of a bear market, defined as a 20 percent drop from its most recent peak. The broad-based index briefly went there in intraday trading on Friday, then rose 1.9 percent on Monday. wide rally this also boosted the Nasdaq 1.6 percent and the Dow almost 2 percent.
Analysts said the volatility was driven by investor uncertainty and feared the U.S. economy could find itself in a recession as the Federal Reserve took a more aggressive stance on interest rates to contain rising inflation.
A few leading economists sounded the alarm: Rising interest rates could hurt sectors of the economy. The Fed raised the benchmark rate by half a point in May, and five more are expected this year. Higher rates often mean higher borrowing costs for businesses and households. Mortgage rates have been climbing for weeks, and in mid-April, a 30-year fixed-rate mortgage rose above 5 percent for the first time since 2011.
In the same month, new home sales fell 16.6 percent to 591,000, according to Census Bureau data released Tuesday. This is the fourth consecutive month of decline.
Chris Rupkey, chief economist at FWDBonds, said: “The drop in new home sales is what we see at the start of most recessions, and it will be a miracle if the country is able to avert another recession.” Said.
The tech sector suffered huge losses on Tuesday, and Snap fell more than 43 percent after the messaging app maker warned it would miss its second-quarter financial targets amid eroding economic conditions. Snap leaders told employees on Monday that the company will rein in hiring and spending in the face of disruptions in the digital ad market. The Wall Street Journal reported. Frightened investors, Facebook’s parent company Meta Platforms tumbled 7.6 percent and Alphabet 5.1 percent. Netflix and Peloton fell 3.6 percent and 7.7 percent, respectively.
David Bahnsen, a wealth manager in Newport Beach, California, said he saw parallels with the 2000 stock market, when tech valuations fell in an industry-wide account known as the dot-com crash.
“The ‘bright objects’ of the market, particularly tech stocks that have developed during the pandemic but lacked an underlying business model, were most vulnerable and this vulnerability will remain,” Bahnsen wrote in an email. Said.
The retail industry, meanwhile, missed a surprise gain from Abercrombie & Fitch, which fell nearly 29 percent. Other clothing brands sold together; Gap and Lululemon fell 8.3 percent and 5.6 percent, respectively.
“[Wall] Street is worried about consumer slowdown, and overnight this string of bad news has fueled the fire for the bears,” said Dan Ives, general manager of Wedbush Securities.
Retail losses are largely due to increased fuel and compensation costs, which are eroding profits and outweighing otherwise strong purchasing activity.
Best Buy reported that sales fell in the first quarter as CEO Corie Barry indicated softer demand and lowered its outlook for the year. But shares rose 1.2 percent as the company managed to beat Wall Street’s expectations, according to CNBC.
According to Christina Boni, Moody’s senior vice president, the electronics retailer is seeing a pullback after posting massive growth in the pandemic. As consumers find more paying for food and fuel, they ditch on more on-demand purchases like laptops and flat-screen TVs.
Abercrombie & Fitch was hit with a net loss of $10 million despite seeing its strongest first-quarter sales since 2014. The company’s 4 percent sales growth was offset by inflation as CEO Fran Horowitz pointed to higher-than-expected freight and product. costs.
“Looking forward, we expect higher costs to continue to be a headwind at least until the end of the year,” Horowitz said in a news release.
Walmart and Target reported similar issues last week. Walmart’s revenue rose 2.4 percent for the quarter to $141.6 billion, but its preferred measure of profit fell nearly 0.9 percent. Chief Executive Officer Doug McMillon attributed the loss to higher container and storage costs, as well as fuel costs weighing on the logistics network.
Pump prices soared for weeks after Russia’s invasion of Ukraine boosted crude oil prices. West Texas Intermediate crude, the US benchmark, has remained at around $110 a barrel, up nearly 50 percent to date. The national average for a gallon of gas was about $4.60 on Tuesday, according to AAA.
“All this basically says we’re feeling the economic pressure of inflation,” said Michael Farr of DC-based investment firm Farr, Miller and Washington.