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S&P 500 drops for fifth day, slides deeper into bear market territory ahead of Fed decision

Stocks fell on Tuesday as markets struggled to rebound from Monday’s sharp selloff and rates jumped ahead of a key monetary policy announcement from the Federal Reserve.

The S&P 500 fell 0.2%, falling further into bearish territory and more than 21% from its peak. The Nasdaq Composite rose 0.3% while the Dow Jones Industrial Average fell 110 points, or 0.4%.

“This is one of the days when the market is going to have to take a wait-and-see attitude and that’s certainly what seems to be happening across major indices,” said Art Hogan, chief market strategist at National Securities.

“We’re really stuck in a middle ground here,” he added, noting that back and forth isn’t unusual ahead of a major announcement.

The shares extended their losses in the last hour of trading after several failed attempts to rally throughout the session.

The moves in equities came as rates jumped again in anticipation of more aggressive tightening policies from the Fed. The 10-year rate rose above 3.45% on Tuesday and hit a new 11-year high while the 2-year rate jumped 14 basis points to 3.418%.

“If rates haven’t finished going up, then the stock market hasn’t finished going down,” said Jim Paulsen, chief investment strategist at The Leuthold Group.

Shares of Oracle jumped more than 9% after the software company reported an increase in profits spurred by a “major increase in demand” in its cloud infrastructure business. FedEx shares soared 14% after raising its quarterly dividend by more than 50% and announcing it would add three new directors to its board. The stock was about to have its best day in over 20 years.

Boeing and McDonald’s rose about 2% and 1%, respectively, paring some of the Dow’s losses. Utilities fell 3% and consumer staples fell 2%, led by a loss of more than 3% for Procter & Gamble and Clorox. Dow Transportation jumped 2%, buoyed by gains from FedEx and CH Robinson and was on pace for its best day since March.

Travel stocks fell again, with shares of Norwegian Cruise Line and Royal Caribbean falling more than 1%. Delta also fell 2%.

The tech had a brief rally during the trading session, led by shares of Tesla and Nvidia. Growth areas like technology have suffered in recent weeks as investors turn to safe-haven sectors like consumer staples, sending the Nasdaq down more than 30% from its highs.

Traders now see more than a 90% chance of a 75 basis point rate hike at this week’s Fed meeting, which ends Wednesday, according to CME Group’s FedWatch tool that measures prices on the fed funds futures markets.

CNBC’s Steve Liesman reported on Monday that the Fed would “likely” consider a 75 basis point hike, which is higher than the 50 basis point hike that many traders were expecting. The Wall Street Journal reported the story first.

The Fed “let inflation spiral out of control. Equity and credit markets have therefore lost faith in the Fed,” Bill Ackman of Pershing Square wrote in a tweet on Tuesday afternoon.

“Market confidence can be restored if the Fed takes aggressive action with 75 basis points tomorrow and in July” and commits to aggressive hikes until inflation “has been brought under control,” Ackman added. .

Tuesday’s market swings followed a heavy selloff that saw the S&P 500 drop 3.9% to its lowest level since March 2021 and close in bearish territory for the first time since 2020 on Monday. During this latest bear market, the S&P 500 lost 33.9% before recovering, according to data compiled by the S&P Dow Jones Indices. The data also showed that bear markets last for more than 18 months on average.

Meanwhile, the Dow Jones fell 2.8% on Monday, putting it around 17% off its all-time high. The Nasdaq Composite fell nearly 4.7% and is now more than 33% off its November high.

Investors digested another important inflation reading from the May producer price index on Tuesday. It showed wholesale prices rose 10.8% and hovered near a record pace.

Sarah Min contributed reporting.

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Post expires at 8:10pm on Monday June 27th, 2022