The S&P 500 fell to a two-year low, ending a bear market rally

September 27 (Reuters) – The S&P 500 (.SPX) It fell to its lowest level in almost two years on Tuesday as worries about the Federal Reserve tightening its super-aggressive policy, trading in a June trough and investors assessing how much more stocks need to fall before stabilizing.

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 is to prevent high inflation even at the risk of derailing the economy.

The S&P 500 touched a session low of 3,623.29, its lowest intraday point since November. 30, 2020. A late rally helped pull the index off its worst low of the day, but the index still Closed It fell 7.75 points, or 0.21%, to 3,647.29 for the sixth consecutive session.

The valuation index fell more than 20% from its early January high to a June 16 low, confirming that the pullback was indeed a bear market, with the S&P then rallying towards mid-August before running out of gas.

The bear market rally is over.

“As long as the Fed continues to raise rates and investors wait for the end of rate hikes, I think this market will continue to be weak,” said Tim Ghriskey, Ingalls & Snyder, New. York.

The big blow for the index, which reignited selling pressure, was Fed Chairman Jerome Powell’s speech in Jackson Hole confirming the Fed’s decision to fight inflation, followed by the central bank’s third consecutive 75 basis point rate hike last week. After Powell’s speech, the index fell more than 12% and showed little sign of stabilization.

Many analysts had looked at 3900 as a strong technical support level for the index. This gave way after four straight days of selling 11 days ago.

“When you have these sell-off cascades like we’ve seen since the Fed, support really doesn’t matter, you can cut it,” said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska.

“Fundamentals and logic are pretty much thrown out the window because we all think how hawkish the Fed is and then you look around this week and all these central banks have raised interest rates.” Detrick said the coordinated hikes by multiple central banks have investors wondering how hawkish they all will be.

Robert Pavlik, Senior Portfolio Manager at Dakota Wealth in Fairfield, Connecticut, said he’s looking at the worst 3,000 for the S&P as a support level.

“People are concerned about the next few weeks about the Federal Reserve, the direction of interest rates, the health of the economy, as well as earnings season approaching and companies reporting lower-than-expected earnings.”

Analysts are still looking for signs of investor capitulation, which could indicate that selling pressure is wearing off. But this year’s selloff hasn’t had all of those ingredients — a sharp drop in prices, an unusually high volume day and a jump in the CBOE volatility index. (.VIX) 40 or above. Thus, many investors conclude that the sell-off is not over yet.

“It’s going down, you’re getting decent volume, but you don’t necessarily have the classic signs of capitulation,” said Brian Jacobsen, chief investment strategist at Allspring Global Investments in Menomonee Falls, Wisconsin.

“Perhaps enough has changed over the years that some of these indicators are not going to be a very good guide to the future.”

That has investors looking for the next catalyst to help markets stabilize or fall enough to start buying again, such as signs that the Fed’s actions are beginning to curb inflation, a weakening labor market and what could be the upcoming corporate earnings season. .

“(Oct. 7) you get the employment report and the next week you get the inflation report so we’ll be on pins and needles to see what those numbers say and then you have earnings,” Jacobsen said.

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

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