S&P 500 falls for fourth day, casting doubt on summer market return
Shares fell on Wednesday after faltering throughout the trading session as Wall Street struggled to break a three-day losing streak and investors weighed inflation-fighting comments from Federal Reserve officials .
The Dow Jones Industrial Average slipped 161 points, or 5%. The S&P 500 lost 0.4% and the Nasdaq Composite fell 0.4%.
These moves put the Dow and S&P around 7% and 9%, respectively, above their mid-June lows. The Nasdaq is now more than 12% above its low. The peak of the summer rally came two weeks ago on August 16, two months after hitting the June 16 low.
What started out as a strong month for all three major averages is about to end on a weaker note. The Dow Jones and S&P 500 are currently on track to end August down more than 3%. The Nasdaq is expected to end down about 4%.
Investors had been debating for weeks whether the economy was in a recession or heading into one, and many believed that an economic slowdown would give the Fed reason to ease its rate hike plan. Powell, however, reiterated in his Jackson Hole speech on Friday that the central bank is committed to curbing inflation and will continue to raise rates even in a recessionary environment.
“Markets were banking on limited rate hikes and quick rate cuts,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “The speech was clear, however, that the increases will be bigger and the cuts more delayed than expected.”
Shares have sold off sharply since Friday. Adding to Powell’s comments, Cleveland Fed President Loretta Mester said Wednesday she expects benchmark interest rates to rise above 4% by early next year. . On Tuesday, New York Fed President John Williams called for “a somewhat restrictive policy to slow demand.”
As shocking as the latest rout may be for investors, some positive signs could emerge.
“This volatility is really healthy and constructive,” Sanctuary Wealth Chief Investment Officer Jeff Kilburg told CNBC. “It doesn’t feel good, and the speed the Fed has injected into this process of de-risking has taken a lot of investors’ breath away, but… There are a lot of signs that are more optimistic than negative” – like rising Treasury yields, he said.
“For the market to go from 3,600 to 4,300 in 19 trading sessions, that’s not sustainable,” he added. “Seeing the market come back and the S&P 500 filling volume around 4,000 is really constructive and allows us to have a base taking another step higher against the backdrop of an earnings season that is better than expected and the consumer sentiment slowly picking up.”