On Tuesday, the S&P 500 (.SPX) dropped to a level below its June low amid concerns about extremely vigorous Federal Reserve policy tightening, prompting investors to estimate how much lower stocks would have to drop before stabilising.
Since late August, when the U.S. Federal Reserve made statements and took bold actions that suggested the central bank’s primary objective is to combat excessive inflation even at the risk of sending the economy into a recession, stocks have been under pressure.
The S&P 500 reached its lowest intraday mark since November 30, 2020, at 3,623.29 during the session. The index shed 7.75 points, or 0.21%, to close at 3,647.29, however, despite a late rebound, the index nevertheless closed down for a sixth straight day.
The S&P then rebounded into mid-August before losing steam after the benchmark index dropped more than 20% from its initial January peak to a low on June 16, which established that the decline was in fact a bear market.
The rally during a down market is now finished.
This market will remain sluggish as long as the Fed keeps raising rates and investors don’t expect an end to the rate hikes, according to Tim Ghriskey, Veteran Portfolio Strategist, New York’s Ingalls & Snyder.
Fed Chair Jerome Powell’s statement at Jackson Hole, which reaffirmed the Fed’s commitment to fighting inflation, dealt the index a major hit and reignited selling pressure. The following week, the Fed raised interest rates by 75 basis points for the third time in a row. Since Powell’s speech, the index has decreased by more than 12% and shows little sign of stabilising.
3,900 had been regarded by many experts as a crucial technical support point for the index. Under four days straight of selling, that began to give way 11 days ago.
When there are these cascades of selling like there have been since the Fed, according to Ryan Detrick, a market strategist in charge at Carson Group, based in Omaha, Nebraska, support doesn’t really matter because they may cut right through it.
Fundamentals and rationality are all but abandoned because everyone is trying to figure out just how aggressive the Fed is, and then they notice that this week all the central banks around the world raised interest rates. According to Detrick, synchronised rate hikes by several central banks have investors questioning how hawkish they will all ultimately turn out to be.
Robert Pavlik, Veteran Portfolio Manager at the Dakota Wealth in Fairfield, Connecticut, stated that he considers the S&P 3,000 as a support level in the worst-case scenario.
Concerns about the Federal Reserve, interest rate trends, the state of the economy, the upcoming earnings season, and corporations reporting lower-than-expected results have people worried.
Analysts continue to hunt for indicators of investor surrender that would demonstrate that the selling pressure has subsided. The sharp decrease in prices, the day of abnormally high volume, and the increase in the CBOE Volatility index (.VIX) to Forty or higher have not all been present in sell-offs this year. As a result, many investors conclude that selling has not yet peaked.
People hear fairly decent volume as it decreases. According to Brian Jacobsen – senior strategist at the Allspring Global Investments, based in Menomonee Falls, Wisconsin, they may not always exhibit the conventional signals of capitulation.
Enough may have transpired over the years for some of those signs to be a poor predictor of the future.
Investors are now left searching for the next catalyst that will help markets stabilise or become cheap enough to consider importing again, such as indications that the Fed’s policies may be beginning to rein in inflation, a lessening of the labour market, and what the forthcoming corporate profits season may bring about.
According to Jacobsen, on October 7 the public will receive the job situation report, and the following week they will receive the inflation report. Everyone will be anxiously awaiting the results of both reports before the investors receive their earnings.