S&P inches closer to 20% threshold for bear market

Markets continue free fall as investors fear inflation eating up profits at US firms

NEW YORK — Another volatile day on Wall Street ended with more losses for stocks Thursday, drawing the S&P 500 closer to its first bear market since the beginning of the pandemic.

The index, a benchmark for many funds, fell 0.6% after easing off a deeper stumble. The latest decline came a day after the S&P 500 had its biggest drop in nearly two years. It’s down 18.7% from the record high it set early this year and is nearly at the 20% threshold that defines a bear market.

The Dow Jones Industrial Average fell 0.8% and the Nasdaq slipped 0.3%.

The indexes have remained mired in a slump as investors worry that the soaring inflation that’s hurting people shopping for groceries and filling their cars up is also walloping profits at U.S. companies.

The latest pullback is further indication “that the market is trying to find direction,” said Lindsey Bell, chief markets and money strategist at Ally Invest. “There’s just still a significant amount of uncertainty, especially in regard to what the (Federal Reserve) is going to do, how that’s going to impact growth in the future, and additionally, where the heck is inflation going from here.”

The S&P 500 fell 22.89 points to 3,900.79. The Dow dropped 236.94 points to 31,253.13. The Nasdaq slid 29.66 points to 11,388.50. The three indexes are on pace to extend a string of at least six weekly losses. The Russell 2000 rose 1.38 points to 1,776.22.

Rising interest rates, high inflation, the war in Ukraine and a slowdown in China’s economy have caused investors to reconsider the prices they’re willing to pay for a range of stocks, from tech companies to automakers.

Wall Street is also worried about the Federal Reserve’s plan to fight the highest inflation in four decades. The Fed is raising interest rates and investors are concerned that the central bank could cause a recession if it raises rates too high or too quickly.

The 10-year Treasury pulled back to 2.85% from 2.88% late Wednesday, but it has been generally rising as investors prepare for a market with higher interest rates. That has also pushed up mortgage rates, which is contributing to a slowdown in home sales.

The pile of concerns on Wall Street has made for choppy trading and big swings between gains and losses within any given day.

Technology stocks have been some of the most volatile holdings. The sector has been hit especially hard by the Fed’s policy shift to raise interest rates. Low rates help support investments considered more risky, and higher rates lessen the incentive to take that risk.

Technology stocks fell Thursday, accounting for a big share of the S&P 500’s drop.

Cisco Systems slumped 13.7% after the seller of routers and switches cut its profit forecast amid supply chain constraints. Synopsis jumped 10.3% after the software company raised its financial forecasts for the year.