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

September 27 (Reuters) – The S&P 500 (.SPX) fell to its lowest level in nearly two years on Tuesday on concerns about the Federal Reserve tightening policy, trading below its June low and leaving investors assessing how much further stocks would have to fall before stabilizing. .

Stocks have been under pressure since late August after aggressive comments and actions from the US Federal Reserve signaled that the central bank’s top priority is stamping out high inflation, even at the risk of leading to the economy into a recession.

The S&P 500 hit a session low of 3,623.29, its lowest intraday since Nov. 30, 2020. A late rally helped the index pull away from its worst of the day, but the index closed lower for the sixth consecutive session. as it lost 7.75 points, or 0.21%, to 3,647.29.

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After the benchmark index fell more than 20% from its early January high to the June 16 low, confirming that the pullback was indeed a bear market, the S&P rallied until mid-August before falling. out of gas.

That bear market rally is now over.

“As long as the Fed continues to hike rates and investors don’t anticipate the end of rate hikes, I think this market will remain weak,” said Tim Ghriskey, senior portfolio strategist, Ingalls & Snyder, New York.

The big blow to the index that reignited the selling pressure was Fed Chairman Jerome Powell’s Jackson Hole speech confirming the Fed’s resolve to fight inflation, followed by a third straight rate hike. interest rate of 75 basis points from the central bank last week. The index has fallen more than 12% since Powell’s speech and has shown little sign of stabilizing.

Many analysts had viewed 3,900 as a strong technical support level for the index. That gave way 11 days ago under four straight selling days.

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

“Fundamentals and logic almost went out the window because we all wonder how aggressive the Fed is, and then you look back this week and all these central banks around the world raised rates.” Detrick said the coordinated hikes by various central banks left investors wondering how aggressive they will end up being.

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

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

Analysts are still looking for signs of investor capitulation that could show selling pressure is exhausted. But this year’s sell-off hasn’t contained all of those ingredients: a sharp drop in prices, a day of unusually high volume, and a jump in the CBOE volatility index. (.VIX) to 40 or more. Therefore, many investors conclude that the sale has not been exhausted yet.

“Go down, you get decent volume, but you don’t necessarily have the classic signs of capitulation,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments in Menomonee Falls, Wisconsin.

“Perhaps enough has changed over the years that some of those indicators are not a very good guide to the future.”

That leaves investors looking for the next catalyst to help markets stabilize, or be cheap enough to start buying again, for signs that the Fed’s actions may be beginning to rein in inflation, a weakening of the job market and what the next corporate earnings season will be. May cause.

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

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

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