Despite the neutral closing of the US stock market on Friday, the major stock benchmarks declined once again at the end of the week. Dow Jones Industrial lost 2.9% continuing its eight-week losing streak for the first time since 1923. The S&P 500 and the Nasdaq index of technology stocks have fallen for seven consecutive weeks, with the latter losing 3% and 3.8%, respectively.
Ross Stores (ROST) became the latest relatively large retailer to show the impact of inflation and supply chain disruptions on business profitability. Joining shares of Walmart (WMT) and Target (TGT), the California-based company, which operates 1,500 stores in 37 states, dropped 22.47% in trading on May 20.
Incidentally, Sam Walton’s brainchild fell in one week by nearly 20% for the first time in its 60-year history.
The day before, Fed Chairman Jerome Powell made it clear that the Fed would not hesitate to keep raising interest rates to counter the run-up to record inflation. However, he stipulated that these measures may include actions beyond the generally accepted norms of the so-called neutrality levels.
Traders estimate the eight-week decline in the Dow Jones for the first time since 1923. Photo: Yahoo Finance
The tough stance of the regulator has caused extreme concern in the investment community that extreme measures could lead the U.S. economy to recession. European banking leader Deutsche Bank added “fuel to the fire” by forecasting a hike of the S&P 500 index to the level of 3,000 points in such a case.
Pressure on tech stocks continues
On the stock exchanges against this backdrop, pressure returned to tech stocks. Shares of Applied Materials (AMAT), Advanced Micro Devices (AMD) and Nvidia (NVDA) were down 3.9%, 3.3% and 2.5% in trading Friday, respectively. Alphabet (GOOGL) securities, which lost 1.34%, were clearly worse than the market.
But not only technologists suffered
Deere & Company (DE) lost 14% of capitalization on the background of quarterly financial results, which disappointed with a decline in revenues of the world leader in the production of agricultural machinery. Another barometer of the world economy, heavy construction and mining equipment manufacturer Caterpillar (CAT) lost more than 4% of its value.
On the cusp of a Bearish market? Or is the market already there?
The U.S. stock market came very close (-19%) to a bear market – minus 20% of the S&P 500 index maximum. On the Dow Jones the decline is almost twice as weak, but at the same time on the Nasdaq it comes close to 30%.
The market has “caught” 12 bearish stretches over the past 70, and 17 if you count the “near-bearish” stretches when the stock index was losing about 19%. The average decline during the above cycles was 29.6%, and lasted 340 days. So at this point the probability of recession is already estimated at 60-70%.
In anticipation of a recession
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the NBER (National Bureau of Economic Research) is officially declaring the economy a recession after two consecutive quarters of negative GDP. The U.S. economy has already contracted at an annualized rate of 1.4% in the first three months of this year. So the “verdict” cannot be expected until mid-summer at the earliest.
Considering that the stock market has an outrunning tendency to catch the bottom at least several months before the economic data, at best the S&P 500 will fall only to 3400-3600 points based on the median average of the historical data. The Dow Jones has a good chance of testing the psychological level of 30,000 points.
