Another drop in stocks on Friday pushed the S&P 500 index 20% below its high reached earlier this year.
The benchmark was down 2% for the day in the early afternoon and on pace for its seventh straight week of losses.
Rising interest rates, high inflation, the war in Ukraine and a slowing Chinese economy are hurting equities and raising fears of a possible recession in the United States.
If the S&P 500 ends the day 20% or more below its all-time high, it would enter what Wall Street calls a “bear market.” The last was in early 2020 at the onset of the pandemic, an unusually brief downturn that slashed the S&P 500 by 34%.
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The stock market remains stuck in a slump amid concerns about how inflation is squeezing businesses and consumers. Investors are also concerned about the Federal Reserve’s plan to aggressively raise interest rates and wonder if this will help blunt the impact of inflation or could cause the economy to slow.
“Certainly the market volatility was driven by investor fears that the Fed might tighten policy too much and push the United States into a recession,” said Michael Arone, chief investment strategist at State Street. Global Advisors.
The S&P 500 fell 2.1% at 1:39 p.m. EST. The Dow Jones Industrial Average fell 569 points, or 1.8%, to 30,683 and the Nasdaq fell 2.9%. All three are heading for declines of 4% or more for the week.
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Bond yields fell as investors shifted money to lower-risk investments. The yield on the 10-year Treasury note, which helps set mortgage rates, fell to 2.78% from 2.85% on Thursday evening.
Inflation concerns escalated with Russia’s invasion of Ukraine, which pushed up prices for energy and some key food items. China, the world’s second-largest economy, has again been hit by lockdowns in key cities due to COVID-19 cases, but a surprise interest rate cut by the Chinese government has at least temporarily eased some anxiety.
Wall Street digested retail earnings this week. The sector is a key target as investors try to gauge the damage inflation is inflicting on business operations and whether rising prices for everything from food to clothing are prompting consumers to cut back on spending.
Retail giants Target and Walmart both received warnings this week that inflation would squeeze finances. Discount retailer Ross Stores plunged 24% on Friday after slashing its profit forecast and citing rising inflation as a factor.
“The latest retail business earnings finally signaled that American consumers and businesses are being negatively impacted by inflation,” Arone said.
Investors continue to watch the Fed for signs of further interest rate hikes to ease inflation, which is at its highest level in four decades. Fed Chairman Jerome Powell said this week that the US central bank may take more aggressive action if price pressures do not ease.
Tech stocks fell sharply and weighed on the market. Applied Materials, which produces chip-making equipment, fell 7.7%. The technology sector was particularly choppy and caused many of the big swings in the market throughout the week.