Wall Street stocks flirt with bear market as growth concerns mount

Wall Street stocks briefly entered bear market territory on Friday, as mounting concerns over economic growth and inflation sent investors searching for havens.

The S&P 500 fell as much as 2.3 per cent, temporarily dragging the index down more than 20 per cent from its recent high, the common definition of a bear market. It has been the first time the index declined by such a large amount since the sell-off sparked by the start of the coronavirus pandemic in March 2020.

The index pared losses later on Friday afternoon, however, closing up 0.01 per cent and down 18.7 per cent from its record peak in early January.

Stocks have tumbled this year as central banks, led by the Federal Reserve, rapidly unwind stimulus measures in an attempt to bring down inflation from multi-decade highs, while the Ukraine war has disrupted supply chains and hit commodity prices. At the same time, there are indications that economic growth may be faltering across major global economies.

Friday’s fall also left the S&P 500 nursing its seventh straight week of declines, down 3 per cent from where it ended the prior week. The index has not sustained such a prolonged fall since 2001.

The technology-heavy Nasdaq Composite closed down 0.3 per cent, adding to losses from the previous two days and ending the week more than 3.8 per cent lower.

“The strong consensus narrative is that growth goes down from here, there is a recession in the foreseeable future, interest rates will keep going up and inflation should come down but will remain high,” said Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management.

In a sign of the worries sweeping across markets, investors yanked $5.2bn from global equity mutual funds in the week to Wednesday, bringing outflows over the past four weeks to about $16bn, according to a Goldman Sachs report.

Selling this year was initially concentrated among the big technology stocks that prospered during the pandemic. But the pain is now spreading more broadly, with every major S&P 500 sector down for the year — apart from the energy industry.

Walmart and Target, two big US retailers that are considered to be a proxy for the state of US consumers, spooked markets this week when they warned over surging cost pressures.

Traders, meanwhile, shifted into havens, sending the yield on the benchmark 10-year US Treasury note down 0.05 percentage points on Friday to 2.79 per cent. The yield reached a peak of 3.2 per cent during the previous week.

“Markets are in a slow grind downward,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham. “It’s a combination of fear of a [Federal Reserve] mistake, if they raise rates too quickly, and fear that this inflationary trend is going to eat into spending, which then leads to a reduction in companies’ earnings.”