Investors wonder when US stock sell-off will end

A week of heavy selling has rocked US stocks and bonds, and many investors are bracing for more pain ahead.

Wall Street banks are adjusting their forecasts to account for a Federal Reserve that shows no evidence of letting up, signalling more tightening ahead to fight inflation after another market-bruising rate hike this week.

The S&P 500 is down more than 22% this year. On Friday, it briefly dipped below its mid-June closing low of 3,666, erasing a sharp summer rebound in US stocks before paring losses and closing above that level.

With the Fed intent on raising rates higher than expected, “the market right now is going through a crisis of confidence”, said Sam Stovall, Chief Investment Strategist at CFRA Research.

If the S&P 500 closes below the mid-June low in the days ahead, that may prompt another wave of aggressive selling, Stovall said. This could send the index as low as 3,200, a level in line with the average historical decline in bear markets that coincide with recessions.

While recent data has shown a US economy that is comparatively strong, investors worry the Fed’s tightening will bring on a downturn.

A rout in bond markets added pressure on stocks. Yields on the benchmark 10-year Treasury, which moves inversely to prices, recently stood at around 3.69%, their highest level since 2010.

Higher yields on government bonds can dull the allure of equities. Tech stocks are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when bond yields rise.

Published in The Express Tribune, September 25^th, 2022.

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