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S&P 500 drops to two-year low, bear market rally stalls

Sep 27 (Reuters) – S&P 500 Index (.SPX) It fell to its lowest level in nearly two years on Tuesday on concerns about an overly aggressive Fed policy tightening, trading below its June lows and letting investors assess how much additional stocks will fall before stabilizing.

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

The S&P 500 touched a session low of 3623.29, its lowest on a daily basis since November 30, 2020. A late rally helped push the index away from its worst levels on the day, but the index still closed lower for the sixth consecutive session. Where it lost 7.75 points, or 0.21%, to 3647.29 points.

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

This bear market rally is now over.

said Tim Greskey, chief strategist at Ingalls & Snyder, New York.

The big blow to the index that reignited selling pressure was Federal Reserve Chairman Jerome Powell’s Jackson Hole speech emphasizing the Fed’s determination to fight inflation, followed by the third consecutive 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.

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Many analysts viewed 3900 as a strong technical support level for the index. It gave way 11 days earlier in less than four straight days of selling.

“When you have a streak of sell-offs like the one we’ve seen since the Fed, the support doesn’t really matter, you can hack it right in,” said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska.

“Fundamentals and logic are almost thrown out because we are all wondering how tight the Fed is, and then you look around this week and all these central banks around the world have raised rates.” Dietrich said coordinated increases by several central banks made investors question how tight all of them are.

Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut, said he views the worst case of the S&P 3,000 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 as earnings season approaches and companies report lower-than-expected earnings.”

Analysts are still looking for signs of investor capitulation that could show selling pressure is exhausted. But this year’s sell-off didn’t have all of these ingredients – a sharp price drop, an unusually high volume day, and a jump in the CBOE volatility index. (.VIX) to 40 or more. Therefore, many investors conclude that the sale has not yet dried up.

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“You go down, you get some decent volume, but you don’t necessarily have the classic signs of giving up,” said Brian Jacobsen, senior investment analyst at Allspring Global Investments in Menomoney Falls, Wisconsin.

“Maybe enough has changed over the years that some of these indicators won’t be a very good guide for the future.”

That leaves investors looking for the next catalyst to help markets stabilize, or get a price cheap enough to start buying again, such as signs that the Fed’s actions may begin to tame inflation, a weakening of the labor market, and what corporate earnings season is coming. may bring.

“On October 7, you get the employment report, and the next week you get the inflation report, so we’ll be waiting to see what those numbers say, and then you get the dividend,” Jacobsen said.

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(Reporting by Chuck Mikolajchak) Additional reporting by Noel Randich and Ankika Biswas; Editing by Alden Bentley, Franklin Paul, Nick Ziminsky, Chizu Nomiyama, and David Gregorio

Our criteria: Thomson Reuters Trust Principles.