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S&P 500 falls to two-year low, bear market rally snuffed out

S&P 500 falls to two-year low, bear market rally snuffed out
Written by boustamohamed31

September 27 (Reuters) – S&P 500 (.SPX) fell to its lowest level in nearly two years on Tuesday on worries about the Federal Reserve’s ultra-aggressive policy tightening, trading below its June low and leaving investors to gauge how much further stocks will have to fall before stabilize.

Stocks have been under pressure since late August after comments and aggressive action by the US Federal Reserve signaled the central bank’s top priority was to rein in high inflation, even at the risk of tipping the economy into recession.

The S&P 500 hit a session low of 3,623.29, its lowest point on an intraday basis since November. 30, 2020 A late rally helped push the index off its worst level of the day, but the index still closed lower for a sixth straight session as it lost 7.75 points, or 0.21%, to 3,647.29.

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After the benchmark fell more than 20% from its peak in early January to a June 16 bottom that confirmed the pullback was indeed a bear market, the S&P rallied through mid-August before running out of fuel.

This bear market rally is now over.

“As long as the Fed continues to raise rates and investors don’t expect an end to rate hikes, I think this market will continue to be weak,” said Tim Grisky, senior portfolio strategist, Ingalls & Snyder, New York.

The big blow to the index, which renewed selling pressure, was Fed Chairman Jerome Powell’s speech in Jackson Hole, which reaffirmed the Fed’s determination to fight inflation, followed by the central bank’s third consecutive 75-basis-point interest rate hike last year. a week. The index fell more than 12% after Powell’s speech and showed little sign of stabilization.

Many analysts viewed 3,900 as a strong technical support level for the index. That retreated 11 days ago on four straight days of selling.

“When you have these cascades of selling like we’ve seen from the Fed, really the support doesn’t really matter, you can break it,” said Ryan Detrick, chief market strategist at the Carson Group in Omaha, Nebraska.

“Fundamentals and logic are pretty much thrown out the window because we’re all wondering how hawkish the Fed is, and then you look around this week and all these central banks around the world have raised rates.” Detrick said coordinated hikes by multiple central banks have investors to wonder how hawkish they will all be in the end.

Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Conn., said he views a worst-case 3,000 for the S&P as a support level.

“People are concerned about the Federal Reserve, the direction of interest rates, the health of the economy, and also the next few weeks with earnings season approaching and companies reporting lower-than-expected earnings.”

Analysts are still looking for signs of investor capitulation that could indicate selling pressure has worn off. But this year’s selloff didn’t have all of those ingredients — a sharp drop in prices, an unusually high volume day and a spike in the CBOE Volatility Index (.VIX) up to 40 or more. So many investors are concluding that the sell-off isn’t over yet.

“It’s going down, you’re getting some decent volume, but you don’t necessarily have the classic signs of a capitulation,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments in Menomonie Falls, Wis.

“Perhaps enough has changed over the years that some of these metrics won’t be a very good guide to the future.”

That has investors looking for the next catalyst to help stabilize markets or get cheap enough to start buying again, as signs the Fed’s actions may be starting to tame inflation, a weakening labor market and what could to make the upcoming season of corporate earnings challenge.

“On (Oct. 7) you get the employment report and the next week you get the inflation report, so we’ll be nervous waiting to see what those numbers say, and then you’ll have earnings,” Jacobsen said.

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Reporting by Chuck Mikolajczak; additional reporting by Noel Randevich and Ankika Biswas; Editing by Alden Bentley, Franklin Paul, Nick Zieminski, Chizu Nomiyama and David Gregorio

Our standards: Thomson Reuters Trust Principles.

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