Shares End Volatile Session Flat But Post Longest Weekly Losing Streak Since 2001

US stocks ended a volatile session on Friday little changed, but still posted steep weekly losses. The S&P 500 posted its longest weekly losing streak since the dot-com bubble burst, as concerns about tighter monetary policy and the economy’s resilience and corporate profits against inflation they rebounded

The blue-chip index ended a choppy session up just 0.01% to settle at 3,901.36. That sent the index down 18.7% from its record close of 4,796.56 since Jan. 3, bringing the S&P 500 within striking distance of a once-defined bear market an index closes at least 20% from a recent historical closing high. . On an intraday basis, the S&P 500 was down as much as 20.6% from its record high close on Jan. 3. The S&P 500 also posted a seventh straight weekly loss in its longest losing streak since 2001.

The other major indexes also ended little changed on Friday, but down for the week. The Dow Jones Industrial Average rose just 0.03%, or 8.77 points, to 31,261.90, posting its eighth straight weekly loss. The Nasdaq Composite fell 0.3% to close at 11,354.62. Treasury yields sank, with the yield on the benchmark 10-year note falling below 2.8%, while US crude prices rose to more than $112 a barrel.

The latest bout of volatility in stocks came on the back of weaker-than-expected earnings results and guidance from some major US retailers earlier this week that appeared to confirm fears that companies would have more difficulty passing on the increased costs to consumers. Ross Stores ( ROST ) late Thursday became the latest major retailer to cut its full-year guidance, joining Walmart ( WMT ) and Target ( TGT ) in highlighting the impact that inflation and supply chain disruptions have taken a toll on profitability. Walmart shares fell 19.5% this week in the stock’s worst weekly performance on record.

“Unfortunately there is no safe haven. When we see the news that came out of consumer discretionary and staples … it shows the struggles that companies have regardless of their size,” Eva Ados, COO of ER shares, he told Yahoo Finance Live. “And ironically, these are the sectors, staples and consumer discretionary, that are considered safe havens in a bad economic market.”

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Close to a bear market

The S&P 500 has come close to settling 20% below its recent record high, which would mark the index’s first bear market since the early days of the COVID-19 pandemic in 2020.

The Nasdaq Composite had already fallen into a bear market earlier in the year as traders steered away from growth stocks amid expectations of higher interest rates from the Federal Reserve, which would pressure bond valuations. high-flying technology stocks. As of Friday’s close, the Nasdaq Composite had fallen nearly 30% from its all-time high of Nov. 19, 2021. The Dow has fallen into a correction, or at least a 10% decline from a recent record high, but it hasn’t arrived yet. the threshold of a bear market.

Since World War II, there have been 12 formal bear markets for the S&P 500 and 17 including “near-bear markets,” when the index fell more than 19%, according to Ryan Detrick, financial market strategist from LPL. Of these, the average drop was 29.6%, and lasted an average of 11.4 months.

The S&P 500’s latest slide has come amid mounting concerns over decades: high inflation rates, tighter monetary policy from the Federal Reserve, geopolitical turmoil in Ukraine and renewed virus-related restrictions in China . And given this confluence of concerns, discussions about the likelihood of a US recession have also increased. Although it is up to the National Bureau of Economic Research (NBER) to formally call a recession, it is usually considered one after two consecutive quarters of negative GDP (gross domestic product) growth. The US economy already contracted at an annualized rate of 1.4% during the first three months of this year.

“The breakdown of recessionary and non-recessionary bear markets shows an interesting development. If the economy is in recession, bear markets get worse, falling 34.8% on average and lasting nearly 15 months,” Detrick wrote in a note. “If the economy avoids a recession, the bear market hits funds at 23.8% and lasts just over seven months on average.”

Recession risks

While recent declines in the S&P 500 reflect sour investor sentiment given the uncertain economic environment, a dip in a bear market does not guarantee a recession. Worsening stock market losses, however, have shown that investors are increasingly expecting a fall.

“Historically, the S&P 500 has fallen an average of 29% around recessions (median 24%),” Keith Lerner, co-chief investment officer and market strategist at Truist Advisory Services, wrote in a note early Friday. “With the S&P 500 currently showing a peak-to-low decline of nearly 19% [as of Thursday’s close]the market is already pricing in a 60%-70% chance of a recession based on the mean and median.”

Strategists at other major companies have also stressed that the S&P 500 has priced in a growing likelihood of a recession.

“A recession is not inevitable, but clients are constantly wondering what to expect from stocks in the event of a recession,” David Kostin, chief US strategist at Goldman Sachs, wrote in a note this week. “Our economists love a 35% probability that the US economy will enter a recession within the next two years and believes that the yield curve is pricing in a similar probability of contraction. The gyrations within the U.S. stock market indicate that investors are valuing high odds of a downturn against the strength of recent economic data.”

Lerner also noted that based on the S&P 500’s mean and median declines around recessions since World War II, the index could drop this time to between 3,400 and 3,650.

“That would make an incredibly brutal market feel much worse, and of course markets could go further than average,” Lerner noted.

But once a fund has been placed during a recession, returns tend to be marked. Lerner noted that the average one-year return for low stocks around a recession is 40%.

“In other words, even if the stock were to drop to 3,400, using the average retracement, the stock would be near 4,800,” Lerner said. “The other thing to remember is that stocks tend to go down several months before a recession ends and often when we reach peak pessimism. This happens when investors think to themselves, ‘I can’t think of a reason why the markets up”. All the headlines are negative”.

NEW YORK, NEW YORK – MAY 6: Traders work on the floor of the New York Stock Exchange (NYSE) during morning trading on May 6, 2022 in New York City. After a day that saw it drop more than 1,000 points on inflation fears, the Dow Jones Industrial Average was down more than 200 points in morning trading. (Photo by Spencer Platt/Getty Images)

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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