Wall Street stocks slumped into a bear market on Friday as mounting concerns over economic growth and inflation sent investors racing for safe havens.
The S&P 500 fell 1.8 per cent in afternoon trading taking losses from its high on January 3 over 20 per cent, the common definition of a bear market.
Friday’s fall also left the S&P 500 poised to close the week nearly 5 per cent lower, marking the seventh straight week of declines. The index has not sustained such a prolonged fall since 2001.
It is the first time stocks have entered bear market territory since the sell- off sparked by the start of the coronavirus pandemic in March 2020. Shares subsequently surged, hitting record highs, but have tumbled this year as the forces that drove the powerful rebound from the depths of the Covid crisis go into reverse.
The technology-heavy Nasdaq Composite slid 2.7 per cent on Friday afternoon in New York, adding to losses from earlier sessions and putting the index on course to end the week down more than 6 per cent.
Central banks, led by the Federal Reserve, are rapidly unwinding stimulus measures in an attempt to bring inflation down from multi-decade highs while the Ukraine war has disrupted supply chains and hit commodity prices. At the same time, there are indications that economic growth may be faltering across major global economies.
“The strong consensus narrative is that growth goes down from here, there is a recession in the foreseeable future, interest rates will keep going up and inflation should come down but will remain high,” said Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management.
In a sign of the worries sweeping across markets, investors yanked $5.2bn from global equity mutual funds in the week to Wednesday, bringing outflows over the past four weeks to around $16bn, according to a Goldman Sachs report.
Selling this year was initially concentrated among the big technology stocks that prospered during the pandemic. But the pain is now spreading more broadly, with every major S&P 500 sector down for the year — apart from the energy industry.
Walmart and Target, two big US retailers that are considered to be a proxy for the state of US consumers, spooked markets this week when they warned over surging cost pressures.
Traders, meanwhile, are shifting into havens, sending the yield on the benchmark 10-year US Treasury note down 0.05 percentage points on Friday to 2.79 per cent. The yield had reached a peak of 3.2 per cent last week.
“Markets are in a slow grind downward,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham. “It’s a combination of fear of a [Federal Reserve] mistake, if they raise rates too quickly, and fear that this inflationary trend is going to eat into spending, which then leads to a reduction in companies’ earnings.”
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