Dusseldorf Friday’s trading on Wall Street was a reflection of the stock market week: a friendly start followed by significant losses and a final damage control. The Dow Jones closed unchanged at 31,262 points after being almost two percent down in the meantime. The broader S&P 500 also closed the day before at 3,901 points after slipping as much as 2.3 percent.
At its low on Friday, the S&P, which tracks the price development of the 500 largest US companies, was 20.9 percent below its record high from the beginning of the year. Depending on your perspective, he has thus entered the bear market. What is meant by this is a longer phase of falling prices. It is not clearly defined whether this value must be reached “intraday”, i.e. during the trading day, or at the end of the trading day. But the fact that the S&P is on the verge of a bear market is already causing nervousness when looking at history.
“The average bear market lasts a year. The current downturn lasts only a third of that time. So there’s probably more room to the downside, albeit punctuated by intermittent rallies,” George Ball, chief executive of investment firm Sanders Morris Harris, told CNBC.
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The Nasdaq Composite fell even more sharply than the Dow Jones and S&P on Friday. The tech index lost 0.3 percent to 11,355 points after slipping as much as 3.1 percent. The loss since the beginning of the year is more than 27 percent. Keith Lerner, co-chief investment officer at Advisory Services, told Bloomberg: “A lot of excessive valuations are being wrung out right now.”
Recession fears prevail among investors
The optimistic mood from the start of trading lasted only a few hours. After China reacted to the real estate crisis in the country with the largest interest rate cut since 2019, prices in Europe and also on the US stock exchanges initially rose. China’s real estate industry is considered the pillar of the entire economy. Depending on the estimate, it directly and indirectly accounts for a quarter to a third of economic output. China, in turn, is considered important for the entire global economy.
>> Read about this: Biggest interest rate cut since 2019: China is fighting the real estate crisis
However, the pessimism on the market is still great. “Economic concerns are mounting as more analysts warn of recession rather than stagflation,” said Kim Rupert, manager at research house Action Economics. “The slump in margins at Target, Walmart and company due to rising costs are taken as a bad omen.”
The retailers Walmart and Target presented weak quarterly figures on Tuesday and Wednesday, triggering massive price losses across the market. Retailers like Walmart are seen as a kind of early indicator that rising prices, especially for energy, groceries and rent, are affecting the purchasing power of US consumers. These are considered to be an important engine of the economy.
>> Read about this: US stock markets with biggest losses in almost two years – and this could be just the beginning
In order to combat inflation effectively, the US Federal Reserve would have to raise interest rates. As a result, less money is spent on borrowing, causing less money to circulate, slowing the economy and lowering inflation. The concern in the market now is that the Fed is raising interest rates to fight inflation to the point of stalling the economy completely.
US stock market expert Koch: “Fear dominates Wall Street”
The Fed has hiked interest rates twice this year. Recently even by 0.5 instead of the usual 0.25 percentage points. The markets are expecting two further rate hikes of 0.5 percentage points each in June and July. “So far, there is no sign that the Fed is unhappy about tighter funding conditions,” said Deutsche Bank analyst Jim Reid.
“No one said it would be easy to get inflation back on target from such high levels,” Reid said. “So if you’re looking for a Fed put, it can take a while.” The term Fed put describes the suspicion that the Fed repeatedly reacts to weak phases on the stock market in a targeted manner and thus supports prices. The term “put” has become common because puts are futures transactions that investors can use to hedge the prices of their securities downwards.
Individual values in focus:
Horse: The shares of the clothing discounter fell by 22.5 percent due to the cut full-year targets. For 2022, instead of an increase in sales of up to three percent, the company expects a decline of up to four percent. Earnings will likely be $4.34 to $4.58 per share instead of $4.71 to $5.12. According to the analysts at brokerage house Telsey, Ross’ customers are primarily low-income customers who are suffering above average from high inflation. In the wake of Ross, the papers of rivals Burlington and TJX slipped by up to 17 percent.
Tesla: Media reports of alleged sexual harassment by CEO Elon Musk are making Tesla investors nervous. Shares of the electric car maker fell 6.4 percent on Wall Street. According to Business Insider, Musk’s space company SpaceX paid $250,000 out of court in 2018 to settle a dispute with a flight attendant on a private jet. Musk denied the allegation of sexual harassment via Twitter.
pharmaceutical companies: The spread of monkeypox in Europe is encouraging investors to buy into some vaccine and chickenpox drug suppliers. Chimerix, Emergent, Tonix and Siga shares are up as much as 43 percent on Wall Street.
match: After an agreement with Google in the dispute over payment practices in the Play Store, investors accessed Match again. The shares of the provider of the dating app “Tinder” rose by 2.2 percent. The company has reportedly withdrawn its injunction against the blocking of its app after Google agreed to allow alternative payment options. The search engine operator, which also offers the Android smartphone operating system, had previously insisted on using the internal system, with which Google secures 30 percent of its income as a commission.
Foot Locker: The shoe retailer’s title rose by 4.1 percent. The company made a surprisingly high profit of $1.60 per share in the past quarter. For the full year, he is targeting a surplus of $4.25 to $4.60 per share.
More: Fed chair does not rule out more aggressive action to keep inflation down