(FiveNation.com)- On Tuesday, the S&P 500 fell to its lowest level in almost two years on worries about super aggressive Federal Reserve policy tightening, trading under its June trough and leaving investors appraising how much further stocks would have to fall before stabilizing.
Stocks have been under pressure since late August after comments, and aggressive actions by the U.S. Federal Reserve signaled the central bank’s top priority is to stamp out high inflation even at the risk of putting the economy into a recession.
The S&P 500 was last down 0.6% at 3,632.
After the benchmark index fell more than 20% from its early January high to a low on June 16, confirming that the retreat was a bear market, the S&P then rallied into mid-August before running out of gas.
That bear-market rally is now over.
Tim Ghriskey, Senior Portfolio Strategist, Ingalls & Snyder, New York. He said that as long as the Fed continues to raise rates and investors don’t anticipate an end to the rate hikes, he thinks this market is going to continue to be weak.
The big blow for the index that re-ignited selling pressure was Fed Chair Jerome Powell’s speech at Jackson Hole that confirmed the Fed’s resolve to fight inflation, followed by a third straight 75 basis point interest rate hike by the central bank last week. The index has tumbled more than 12% since Powell’s speech and has shown little signs of stabilizing.
Many analysts had looked at 3,900 as a strong technical support level for the index. That gave way 11 days ago under four straight days of selling.
Ryan Detrick, the chief market strategist at Carson Group in Omaha, Nebraska, said that when you have these cascades of selling as we’ve seen, fundamentals and logic are almost thrown out the window because “we are all wondering just how hawkish is the Fed.” He said you look around, and central banks around the globe hiked rates and think about “how hawkish could not just the Fed be now, but the rest of the globe.”
Investors are still looking for signposts of investor capitulation showing that selling pressure is exhausted. But this year’s sell-offs have not contained all those ingredients, so many conclude that selling has yet to be depleted. That leaves investors looking for the next catalyst to help markets stabilize or get cheap enough to start buying again.