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

Sep 27 (Reuters) – The S&P 500 (.SPX) fell to its lowest level in nearly two years on Tuesday on concerns over the Federal Reserve’s super-aggressive policy tightening, trading below its June low and letting investors gauge how many more shares would need to fall before leveling off.

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

The S&P 500 hit a session low of 3,623.29, its lowest point on an intraday basis since Nov. 30, 2020. A late rally helped push the index down from its worst level of the day, but the index still closed down for a sixth consecutive session. as it fell 7.75 points, or 0.21%, to 3,647.29.

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After the benchmark fell more than 20% from its high in early January to a low on June 16, confirming that the retreat was indeed a bear market, the S&P then rebounded in mid-August. before running out of gas.

This bearish rally is now over.

“As long as the Fed continues to raise rates and investors don’t anticipate an end to rate hikes, I think this market is going to continue to be weak,” said Tim Ghriskey, senior portfolio strategist, Ingalls & Snyder, New York.

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

Many analysts had seen 3,900 as a strong technical support level for the index. This gave way 11 days ago under four consecutive days of selling.

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

“Fundamentals and logic are almost thrown out the window because we’re all wondering how hawkish the Fed is, and then you look around this week and all these central banks around the world have hiked rates.” Detrick said the coordinated hikes by multiple central banks left investors wondering how hawkish they would all end up.

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

“People are concerned about the Federal Reserve, the direction of interest rates, the health of the economy, as well as the next two weeks with earnings season coming up and companies reporting earnings below expectations.”

Analysts are still looking for signs of investor capitulation which may show that the selling pressure has been exhausted. But this year’s selloffs didn’t contain all of those ingredients — a sharp drop in price, a day of unusually high volume, and a jump in the CBOE Volatility Index (.VIX) to 40 or more. Thus, many investors conclude that the sale has not yet been exhausted.

“It’s going down, you’re getting 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 these indicators aren’t a very good guide going forward.”

This leaves investors looking for the next catalyst to help markets stabilize or become cheap enough to start buying again, as signs that Fed actions may start to get inflation under control, a weakening in the work and what the next corporate earnings season may bring.

“On (October 7th) you get the employment situation report and the following week you get the inflation report, so we will be on pins and needles waiting to see what those numbers say. , then you’ll have income,” Jacobsen said.

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

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