Dow sheds 300 points in choppy trade as S&P 500 teeters on brink of bear market

Dow sheds 300 points in choppy trade as S&P 500 teeters on brink of bear market

U.S. stocks fell Thursday, failing to stabilize amid a broad-based selloff that’s sent stocks to their lowest levels in more than a year, with the S&P 500 nearing bear-market territory.

What’s happening
  • The Dow Jones Industrial Average
    DJIA
    fell 306 points, or 1%, to 31,526.

  • The S&P 500
    SPX
    was down 31 points, or 0.8% at 3,903

  • The Nasdaq Composite
    COMP
    shed 53 points, or 0.5%, to 11,313.

On Wednesday, the Dow Jones Industrial Average fell 327 points, or 1.02%, to 31834, the S&P 500 declined 66 points, or 1.65%, to 3935, and the Nasdaq Composite dropped 373 points, or 3.18%, to 11364.

The S&P 500 has dropped around 18% from its record high set on Jan. 3. A close at or below 3,837.249 would put the large-cap benchmark into a bear market — defined as a drop of 20% from a recent peak.

What’s driving markets

Stocks were lower after fresh economic data showed slowing wholesale inflation in April, but still intense price pressures. Meeting forecasts, prices rose 0.5% in April, from a 1.6% jump in March. Prices over the year slowed to 11% from 11.5%.

Inflation data released Wednesday may have shown a peak in price growth, but the figures were hotter than forecast. Core CPI, which excludes energy and food and tends to be a better predictor of future inflation, surprisingly accelerated in April.

“At least it’s peaked, for now,” said Eric Lynch, managing director at Scharf Investments, about the inflation readings. “The question is do we go to 4% relatively quickly or 6%?” he said by phone.

He also said it “matters a lot where we land,” particularly as higher grocery bills, elevated gas prices and soaring rents translate to stretched paychecks. “It’s probably safe to say we’re not getting to 4% too quickly.”

On the labor front, weekly jobless claims rose 1,000 to 203,000 in the week ended May 7, the Labor Department reported.

High inflation also means the Fed “might have to tighten too much leading to a sharp economic slowdown, but it also means that the economic projection in tech and some other assets are now seen as far too optimistic,” said Sebastian Galy, senior macro strategist at Nordea Asset Management.

“Equity analysts adopting fixed income speech call it a long duration equity that is long on hope as forecasting past two years is very difficult when the wave of liquidity/narrative is no longer so supportive.”

Lynch called current market pressures the “other side of the slope,” or a reversal of when Main Street was collapsing early in the pandemic but Wall Street was rising. “I think there’s a lot of concern about earnings and a recession as interest rates rise.”

The cryptocurrency market has been particularly roiled, as the stablecoin Tether
USDTUSD
said it performed a $1 billion swap after it fell as low as 95 cents on the dollar.

Treasury Secretary Janet Yellen said Thursday that turbulence in the cryptocurrency market is not a hazard for the stability of the U.S. financial system, in testimony at the House Financial Service Committee, while calling on Congress to pass a “comprehensive framework” for digital assets so that there are no gaps in regulation.

“Given that the wave of liquidity pushed tech and some other asset classes up to the top of the dam before it started to collapse, the price dynamics are complex, nonlinear and hard to forecast,” said Galy.

Walt Disney
DIS
shares were under pressure after the entertainment giant forecast that streaming subscriber growth may tail off after better-than-forecast additions in its fiscal second quarter.

Which companies are in focus?
  • Beyond Meat Inc.
    BYND
    shares were up 2.1% Thursday after the company said it got a revenue got a boost from the launch of Beyond Meat Jerky, through a collaboration with PepsiCo Inc.,
    PEP,
    but making the product hurt margins for the quarter.

  • GameStop Corp.
    GME
    shares were up 11.7% and those of AMC Entertainment Holdings
    AMC
    rose 6.5% as meme stocks enjoyed an upswing.

  • AmerisourceBergen Corp.
    ABC
    shares were 7.3% lower, suffering the biggest selloff in more than two years on Thursday, after the drug products and distribution company’s largest investor sold off a chunk of its stake.

  • Coinbase Global Inc.
    COIN
    shares were 4% higher Thursday, but down more than 75% on the year, in the days after the company’s CEO repeated that bankruptcy is not likely despite the plunge in crypto assets from recent highs.

How are other assets doing?
  • Oil futures flipped lower, with the U.S. benchmark CL down 0.1% at $105.63 a barrel. Gold futures GC00 fell, with gold for June delivery down 1.7% at $1,823.30 an ounce.

  • Bitcoin BTCUSD edged up 0.2% near $29,200.

  • The Stoxx Europe 600 XX:SXXP closed down 0.8%, while London’s FTSE 100 UK:UKX fell 1.6%.

  • The Shanghai Composite CN:SHCOMP finished down 0.1%, while the Hang Seng Index HK:HSI fell 2.2% and Japan’s Nikkei 225 JP:NIK lost 1.8%.

Steve Goldstein contributed reporting

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