Investors and their frayed nerves were tested further Friday, with the S&P 500 briefly dipping into bear market terrain in a volatile session marked by big swings and a late comeback.
The Dow Jones industrial average dug itself out of a deficit of more than 600 points and settled at 31,262. But it counted as another negative week for the blue-chip index, its eighth in a row, and capped its longest losing streak in nearly a century. The Nasdaq, heavy in technology stocks and well into its own bear market, closed down 0.3 percent, or close to 34 points, to close at 11,355.
Investors have been in a panic this week in the face of fresh inflation data and weak corporate earnings, while economic storm clouds, such as the war in Ukraine, the supply chain meltdown, high inflation and complications from the pandemic, that have largely defined 2022 have shown no signs of abating. Confidence is dwindling that the Federal Reserve can bring inflation under control without triggering a downturn.
In times like these, it is crucial for investors to take the long view, according to Wayne Wicker, chief investment officer of Mission Square Retirement. Bear markets happen on a relatively regular cycle, and there have been 14 since 1945, lasting an average of 9.5 months. That is significantly shorter than bull markets, which last 2.7 years on average, Wicker said.
The market is, in some sense, overdue. The last bear market ended in March 2020, early in the pandemic, and lasted only 33 days. Aside from that anomalous downturn, there has not been a sustained bear market since 2009, at the end of the financial crisis.
“We’ve gone more than 10 years without a real break to the downside,” Wicker said. “There are a lot of investors out there that may have a 15-year career, but they’ve never seen inflation and a rising rate environment like the one we’re currently involved in.”
International markets got a boost Friday on news that China unexpectedly slashed a key interest rate as the country grapples with the fallout from strict pandemic restrictions, but fears of a growing global slowdown are still hanging over trading according to Russ Mould, investment director at AJ Bell.
“Investors are worried that corporate earnings will come under pressure, businesses will invest less money and consumers will cut back on their spending,” Mould said Friday in commentary. “Markets price in what they think will happen and increasingly investors fear recession.”
The recent volatility on Wall Street has largely been aligned with technology companies as investors rotate away from their highflying stocks. This year, Meta Platform has fallen 42 percent and Amazon has dropped 35 percent, while pandemic darlings Netflix and Peloton have tumbled 69 percent and 59 percent, respectively. (Amazon founder Jeff Bezos owns The Washington Post.)
Tesla, which has slumped 37 percent this year, fell another 6 percent Friday, after sexual harassment allegations involving its billionaire chief executive, Elon Musk, were outlined in an Insider report. Musk, who also runs SpaceX, dismissed the report as a “politically-motivated hit piece” intended to upend his contentious bid to buy Twitter.
This week, attention shifted to retailers as a fuller picture emerged on the toll of rising costs, from soaring fuel expenses to swelling payrolls, on their businesses. Ross Stores stock fell more than 22 percent after it became the latest retailer to deliver disappointing earnings results. The discount chain slashed its yearly outlook, pointing to an array of challenges eroding sales and margins. Target and Walmart voiced similar concerns when they released quarterly financial results this week, and both stocks endured heavy losses.
“We knew fiscal 2022 would be a difficult year to predict, especially the first half when we were facing last year’s record levels of government stimulus and significant customer pent-up demand as COVID restrictions eased,” Barbara Rentler, chief executive of Ross, said in a statement. “The external environment has also proven extremely challenging as the Russia-Ukraine conflict has exacerbated inflationary pressures on the consumer not seen in 40 years.”
Retail sales edged up 0.9 percent in April, according to the Commerce Department, suggesting inflationary concerns are not sidelining consumers just yet, even as they spend more on necessities like gas and groceries. But that is likely to change if pressures do not ease. Gas prices hit a fresh record Friday, with the national average surpassing $4.59 a gallon, according to data tracked by AAA, 50 percent higher than this time last year.
“Another week of incredible market volatility makes it increasingly clear that a ‘buy the dips’ strategy is somewhat treacherous,” David Donabedian, chief investment officer of CIBC Private Wealth Management, said Friday in commentary. “Real time economic data for May is beginning to show warning signs that the economy is slowing down.”
Although the market has yet to find the bottom, Donabedian noted, “investors should remember that this is an uncomfortable but normal part of the market cycle.”
Soaring energy prices present one of the biggest challenges for Group of Seven finance ministers meeting in Bonn, Germany, as well as potentially more sanctions on Russia over its invasion of Ukraine. Europeans have discussed new measures to cut into Russian oil and gas revenue, but any such move could push prices up even further. The United States has already banned energy imports from Russia. Crude oil prices climbed above $112 a barrel on Friday amid the economic pressures.
JPMorgan said this week that the market is pricing in a 70 percent chance of near-term recession, suggesting investors lack confidence the central bank can contain inflation without triggering a downturn. Fed Chair Jerome H. Powell himself recently said the central bank should have moved faster to raise rates and has left the door open for more aggressive action.
The Fed has raised its benchmark interest rate twice this year and is expected to do so five more times this year to ease inflationary pressures. Fed officials have been seeking to pace increases so as not to smother economic growth, a difficult balance to strike. If the economy cools too quickly, it could fall into a recession, generally defined as two consecutive quarters of negative economic growth.
Asian markets closed higher across the board, boosted by news of the rate cut in China. The Hang Seng Index surged nearly 3 percent in Hong Kong, the Shanghai Composite index gained 1.6 percent and the Nikkei 225 advanced nearly 1.3 percent in Japan.
European indexes charted fragile gains to cap off the week after suffering steep losses. The benchmark Stoxx 600 index closed up 0.7 percent, the FTSE 100 rebounded 1.1 percent in Britain, and the DAX advanced 0.7 percent in Germany.