This is a sharp turn from the powerful run enjoyed by Wall Street after exiting the last bear market in early 2020, at the start of the pandemic. Thanks to this, the S&P 500 has more than doubled, as a new generation of investors has met, it would seem, every hesitation shouting “Buy a fall!”
“I think a lot of investors are scratching their heads and wondering why the market is rallying despite the pandemic,” Jacobsen said. “Now, hopefully the pandemic is mostly over, I think a lot of investors are beating themselves up for not coming out on the signs that the economy is likely to slow down and the Fed is taking its policy.”
With inflation at its highest level in four decades, the Fed has aggressively refused to keep ultra-low interest rates to support markets and the economy. Instead, it is raising rates and taking other steps in hopes of slowing the economy enough to curb inflation. Worry if it goes too far or too fast.
“Certainly, market volatility has been driven by investors’ fears that the Fed will tighten policies and plunge the United States into recession,” said Michael Arone, chief investment strategist at State Street Global Advisors.
Bond yields have fallen as worries about the recession have pushed investors into Treasury bonds and other things considered safer. Yields on 10-year Treasury bonds, which help set mortgage rates, fell to 2.78 percent from 2.85 percent at the end of Thursday. Recently, Goldman Sachs economists estimated the probability of a recession in the U.S. over the next two years at 35 percent.
Inflation has been painfully high for months. But market concerns have intensified since Russia’s invasion of Ukraine, which has led to further price increases in grocery stores and gas stations because the region is a major source of energy and grain. Meanwhile, the world’s second-largest economy suffered a blow when Chinese officials closed key cities in hopes of stopping the COVID-19 cases. This is all complicated by some disappointing data on the US economy, although the job market remains hot.
Increasing pressure on stocks was a sign that corporate profits were slowing and could finally be hit by inflation. That means the pain has gone beyond technology and high-rise stocks to cover more Wall Street.
This week, retail giants Target and Walmart warned that inflation is cutting finances. Discount retailer Ross Stores fell 22.5 percent on Friday after lowering its earnings forecast and citing rising inflation as a factor.
“Recent retail earnings have finally shown that inflation is negatively affecting U.S. consumers and businesses,” Arone said.
Although its source is different, the gloom on Wall Street reflects feelings of irritation across the country. A survey by the Associated Press-NORC Center for Public Research, published Friday, found that only about 2 in 10 adults say the U.S. is moving in the right direction or the economy is good, both less than about 3 in 10 months earlier.
Much of Wall Street’s bull market since early 2020 has been the result of purchases by regular investors, many of whom began trading for the first time during the pandemic. Along with many cryptocurrencies, they have helped boost favorites such as Tesla shares. They even made GameStop suddenly rise to such a high level that Wall Street professionals shuddered.
But these traders, whom Wall Street calls “retail investors” to distinguish them from major institutional investors, have retreated as stocks have fallen. Individual investors have evolved from a net buyer to a net seller over the past six months, according to a recent Goldman Sachs report.
The Market Recap newsletter is a day trading wrap. Get it every one of usisday after day.