US equities faltered on Thursday amid growing concerns about an economic slowdown that sent investors to the bond of government bonds.
The S&P 500 recently rose around 0.1%, although still close to bearish market territory, short for a 20% drop from the recent high. The index fell 4% on Wednesday, its biggest one-day decline since June 2020. Following the fall, the S&P 500 was down more than 18% from its all-time high in January.
The Dow Jones Industrial Average fell about 0.5% on Thursday, placing it 15% below its all-time high. The Nasdaq Composite Index, which entered bearish territory earlier this year, reduced early losses and recently rose about 1%.
Investors bought government bonds, perceived as an active refuge in times of economic uncertainty. The yield on 10-year Treasury bonds fell to 2.835% from 2.884% on Wednesday. Thursday’s move put yields, which had skyrocketed for much of the year as the Federal Reserve began raising interest rates, on the verge of falling for seven of the last nine trading days. Bond yields and prices are moving in opposite directions.
Kohl’s gained 3.9% after saying sales weakened in April, becoming the last retailer to point to inflationary pressures on demand. Walmart and Target this week said higher costs affected last quarter’s earnings, prompting a sale of their shares that affected the broader market.
Earnings reports from some of the largest retailers in the United States in recent days have added to the concern that the highest inflation rate in four decades is catching up with U.S. consumers and is putting the economy into recession. Investors were already struggling with the end of an era of weak monetary policy that resulted in large gains for stocks and other riskier assets.
Anthony Saglimbene, global market strategist at Ameriprise Financial, said economic data points to healthy consumer spending, which alleviates fears of a recession.
“For consumers to really cut back on spending, they have to fear that they will lose their jobs and this is not the environment we are in,” Mr. Saglimbene.
Some analysts, however, say a slowdown in consumer spending could mean the Federal Reserve should not raise interest rates so aggressively to reduce consumer demand.
“A slowdown in discretionary spending will help alleviate supply chain constraints organically or naturally,” said Seth Wunder, Acorns’ chief investment officer. “At the end of the day, this is one of the main contributions to the inflationary problems we face.”
In economic news, the Department of Labor said new applications for unemployment benefits rose for the third week in a row. Initial unemployment claims, an indicator of layoffs, remain historically low. Separately, U.S. home prices hit a new high in April, according to new data, but sales fell.
The war in Ukraine adds to the inflationary pressures that have caused the Fed to embark on a series of interest rate hikes and reduce its bond holdings. And Covid-19 closures in China have caused a sharp slowdown in the world’s second largest economy.
Cisco Systems fell 14% after the communications equipment company had not expected analysts’ expectations for its quarterly results. BJ’s Wholesale Club said gasoline sales increased revenue and profits in its first quarter, sending stocks up 10% more.
“The critical part here is how earnings are maintained,” said Desmond Lawrence, senior investment strategist at State Street Global Advisors. “We are at a very uncertain time, so we expect more volatility.”
Markets have become increasingly volatile recently: stocks, bonds and cryptocurrencies have been falling as investors struggle to cope with the major changes affecting financial markets around the world. Caitlin McCabe of WSJ discusses some of the causes behind the recent market frenzy. Photo: Spencer Platt / Getty Images
The combination of factors has led to strong stock losses and some corporate bonds, and many investors expect volatility to continue. “The price action suggests it’s not over,” said Philip Saunders, portfolio manager for Ninety One, an asset manager based in the UK and South Africa.
The last time the S&P 500 fell in a bear market was during the pandemic panic in March 2020. It was short-lived, and the market launched quickly with a two-year rally that peaked at 3 p.m. January. Dow industrials, which are more weighted for old-line industrial companies and banking stocks, have had fewer results and are still far from bearish market territory.
“Put monetary policy in the mix, we have a recipe for investor volatility and concern,” said Clara Cheong, global market strategist at JP Morgan Asset Management.
In the energy markets, world-renowned Brent crude oil oil gained 1.2% to $ 110.43 a barrel.
In Hong Kong, shares of Chinese Internet companies dragged down broader benchmarks.
Photo: Kin Cheung / Associated Press
International stocks retreated, tracking U.S. sales. The Stoxx Europe 600 was down 1.4%, led by shares of financial services and food and beverage companies. Hong Kong’s Hang Seng Index fell 2.5% as Tencent shares fell 6.5% after the video game giant reported its worst quarterly earnings drop since listing on the city.
Among individual European equities, Credit Suisse Group lost 1.2% after Fitch Ratings downgraded the bank’s credit rating to BBB +. Swiss private bank Julius Baer Gruppe fell 6.7% after saying its assets under management fell in the first four months of the year.
Elsewhere in Asia, the CSI 300 index of the largest stocks listed in Shanghai and Shenzhen rose 0.2%. Japan’s Nikkei 225 fell 1.9% and South Korea’s Kospi Composite fell 1.3%.
—Dave Sebastian contributed to this article.
Write to Joe Wallace at joe.wallace@wsj.com and Hardika Singh at hardika.singh@wsj.com
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