The S&P 500 fell to a two-year low, ending a bear market rally

September 27 (Reuters) – The S&P 500 (.SPX) It fell to its lowest level in nearly two years on Tuesday, as the super-aggressive Federal Reserve policy tightening, trading below its June trough, left investors gauging how much more stocks could fall before settling.

Stocks have been under pressure since late August after the U.S. Federal Reserve’s comments and aggressive measures signaled the central bank’s top priority was to control high inflation, even at the risk of pushing the economy into recession.

The S&P 500 was last down 0.6% at 3,632.

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After the benchmark index plunged more than 20% from its early January highs on June 16, confirming that the pullback was indeed a bear market, the S&P would later run out of gas in mid-August.

That bear-market rally is now over.

“As long as the Fed continues to raise rates and investors don’t anticipate an end to rate hikes, I think this market will continue to be weak,” said Tim Krisky, senior portfolio strategist at Ingalls & Snyder. York.

Federal Reserve Chairman Jerome Powell’s speech at Jackson Hole reaffirming the central bank’s resolve to fight inflation was a major blow to the index that reignited selling pressure, following the Fed’s third rate hike of 75 basis points last week. The index has fallen more than 12% since Powell’s speech and has shown little sign of stabilizing.

Many analysts saw 3,900 as a strong technical support level for the index. This led to four days of selling 11 days ago.

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“When you have these layers of selling like we saw from the Fed, support doesn’t really matter, you can cut right through it,” said Ryan Dedrick, chief market strategist at the Carson Group in Omaha, Nebraska.

“Fundamentals and logic are almost thrown out the window because we’re all wondering how hawkish the Fed is, and then you look around this week and all these central banks around the world have raised interest rates this week, and we’re all thinking about how hawkish the Fed can be. The bank should be present not only now, but also in other parts of the world.”

Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut, said he views a break below 3,000 as support for the S&P.

“People are concerned about the Federal Reserve, the direction of interest rates, the health of the economy and earnings season in the next two weeks and companies reporting lower-than-expected earnings.”

Analysts are still looking for signs of investor capitulation that could indicate selling pressure has worn off. But this year’s sell-offs lacked all of those ingredients — a sharp drop in prices, unusually high volumes and a spike in the CBOE volatility index. (.VIX) 40 or more. Therefore, many investors conclude that the sell-off has not yet bottomed out.

“It goes down, you get some decent volume, but you don’t have classic signs of capitulation,” said Brian Jacobson, senior investment strategist at Allspring Global Investments in Menomonie Falls, Wisconsin.

“Enough may have changed over the years that some of those indicators may not be the best guide to the future.”

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Investors are looking for the next catalyst to stabilize markets or get them cheap enough to start buying again, whether central bank actions could begin to rein in inflation, a weakening labor market and what the upcoming corporate earnings season could bring.

“On (October 7), you get the jobs report and next week you get the inflation report, so we’ll be waiting on pins and needles to see what those numbers say and then you get earnings,” Jacobson said.

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Report by Chuck Mikolajczak; Additional reporting by Noel Randevich and Angika Biswas; Editing by Alton Bentley, Franklin Ball, Nick Zieminski and Chisu Nomiyama

Our Standards: Thomson Reuters Trust Principles.

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