Market in turmoil for seventh week straight
Rally just before Friday closing evades bear-market territory
A chaotic day on Wall Street extended the longest period of market turmoil since 2001, with stocks on Friday briefly descending into bear-market territory, a symbolic marker of investors’ deep pessimism about the health of the global economy and the buying power of the American consumer.
The S&P 500 has fallen for seven consecutive weeks, its worst stretch since the dot-com bubble burst more than two decades ago. After a 3 percent drop this week, the index is down 14 percent since early April.
Friday afternoon, the S&P 500 crossed the bear-market threshold of a 20 percent de
cline from its peak Jan. 3. But with less than 30 minutes left before trading ended, after hours of churn and a drop of as much as 2.3 percent, the market rallied and ended a hair above where it started the day.
That was little consolation for investors, many of whom have grown accustomed to years of robust returns and have never seen a market upheaval like this.
With this week’s relentless slide and Friday’s wild swing was a constant worry on Wall Street that rising inflation, compounded by the war in Ukraine, might tip the economy into a recession. At the heart of those fears was fresh evidence reported this week from retailers such as Walmart and Target that rising costs were now hitting corporate America.
During the darkest days of the pandemic, the U.S. economy was propelled by consumers. Even as the costs of goods, transportation and labor increased, companies were able to pocket record profits by raising prices, confident that people would continue buying. But this week brought indications that some consumers may have reached their limit, and profits have started to shrink.
“What the companies are telling us is that they are starting to notice that their consumer is responding to inflation,” said Jay Sole, a retail analyst at UBS. “We were worried about this moment and we were waiting for this moment, and now it’s here.”
Recessions have often followed bear markets, although one does not necessarily cause the other. A bear market occurred in the early days of the coronavirus pandemic, but it was the shortest on record, lasting just 33 days before stocks began to rally. Less than six months later, the S&P 500 began hitting new highs again, climbing 42 percent above its pre-pandemic level before starting to slide in January. Now, the index is down more than 18 percent from its high point.
Friday’s turbulent trading came after months of investors fretting about how serious and longlasting inflation would be and how aggressively the Federal Reserve would have to raise rates to slow the rising cost of living.
James Bullard, president of the Federal Reserve Bank of St. Louis, said during an interview on Fox Business on Friday that raising interest rates by a half-point at coming central bank meetings is “a good plan for now.”
Bullard struck a relatively unconcerned tone about markets, despite the day’s volatility.
“You would expect with the Fed raising rates, that all of these assets — trillions of dollars worldwide — would have to be repriced,” Bullard said.
What set this week apart was a grim earnings report Tuesday from Walmart, the nation’s largest retailer, which confirmed many investors’ worst fears about inflation.
For the first time in many years, Walmart said its quarterly profits fell, a sign to many analysts that the retailer could not pass along many of its rising costs to consumers without risking a slowdown in sales. Target and Kohl’s also said quarterly profits plunged, adding to Wall Street’s unease.
Walmart said that some of its customers were buying less-expensive meats and other food items as costs soared, and that sales of certain discretionary goods such as clothing had slowed, as budget-conscious shoppers focused instead on buying necessities such as groceries. The company’s executives said they saw no signs of inflation starting to abate.
“There is a lot of uncertainty moving forward,” Walmart CEO Doug Mcmillon said in a conference call with Wall Street analysts on Tuesday.
“Things are very fluid.”
Globally, investors can find little comfort. The Russian invasion of Ukraine and the response from other countries has disrupted crucial supplies of energy, wheat and other staples. Poor countries face a gathering catastrophe over hunger and debt.
Treasury Secretary Janet Yellen said high food and energy prices were creating “stagflationary effects” — the combination of high inflation and a stagnating economy. China’s economy, the world’s second-largest after that of the United States, is laboring under the government’s strict pandemic lockdowns. Before the war in Ukraine and COVID -19’s resurgence in China, the International Monetary Fund was projecting global growth of 4.4 percent this year. Now, its forecast is 3.6 percent.
Wall Street had been expecting that torrid consumer demand would have to slow at some point.