(Bloomberg) — A two-year bull run in stocks that began at the depths of the coronavirus panic came close to crashing into a bear market Friday but avoided that fate in the last hour of trading.
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The S&P 500 traded 20% below its record closing high of 4,796.56 for most of the afternoon, but it pared those losses to finish basically where it started the day. The last entered into bear market in February 2020.
The broad equities benchmark ended down for a seventh straight week, its longest weekly losing streak since March 2001, while the Dow Jones Industrial Average notched its eighth straight week of declines, the longest stretch since 1923. The tech-heavy Nasdaq 100 Index also ended down for a seventh week, its longest streak since 2011.
The key to the index’s rise and fall is the Federal Reserve, whose unprecedented efforts to boost the economy in early 2020 helped the S&P 500 more than double through the end of last year. Now, with central bankers reining in stimulus as inflation surges, shares are selling off at the hands of investors convinced a recession is all but unavoidable.
“All of this has been driven by two major forces that were reiterated this week: one is inflation and how stubbornly high it is. And the second is how aggressive the Federal Reserve will likely be to get it under control,” said Art Hogan, chief market strategist at National Securities.
Tech stocks in particular are dragging the market lower, with Apple Inc. and Amazon.com posting an eighth straight weekly drop, while Tesla Inc. fell for a fourth one. The group has come under widespread pressure this year. According to S3 Partners, tech is the most shorted sector in the US market, “making up almost $1 out of every $5 shorted.” Software is the most shorted industry within the sector.
Consumer discretionary sector has been the worst performing group in the S&P 500 since the index’s January high, sinking 34%. The only S&P 500 sector to gain during that stretch is energy, which is up 42%.
Friday’s rollercoaster ride capped a volatile week for the US stock markets, which saw consumer stalwarts that thrived throughout the pandemic-era bull market finally buckle.
Target Corp. plunged the most since Black Monday in 1987, a day after Walmart Inc. suffered a similar fate, on signs that runaway inflation is hurting the US consumer and eroding profit margins.
“The Fed has been a primary driver of these market declines, but the latest news from retailers has added additional concerns to the outlook for the economy,” said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors. “Now that we’ve breached the 20% level, the big question will be where do we go from here?.”
Since 1929, the S&P 500 has entered a bear market 17 times, including Friday, according to data from CFRA Research. The longest period lasted 998 days from September 1929 to June 1932. The shortest was just 33 days from Feb. 19, 2020, to March 23, 2020, CFRA’s data show.
On average, bear markets result in a decline of roughly 38%, although since 1946 the average loss is less than 33%, according to CFRA.
“It was bound to happen because I think the bears wanted to push it there. And a fair amount of people had turned bearish,” said Mike Mullaney, director of global markets research at Boston Partners. “Positioning is catching up with sentiment right now.”
(Adds details on market rebound, updates to close)
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