Nasdaq Falls Into Bear Market After Volatile Day - WSJ
By: Corrie Driebusch and Will Horner (WSJ)
S E E D E D C O N T E N T
The S&P 500 and the Nasdaq Composite fell Tuesday in volatile trading, upended by Bank of England Gov. Andrew Bailey's remark that the U.K. central bank's plan to rescue pension funds hit by interest-rate increases will end as scheduled Friday.
The Nasdaq Composite slipped into a bear market, its second of the year. The S&P 500 and the Dow are already in bear markets, defined in Wall Street parlance as a decline of 20% or more from a recent peak.
Stocks had opened lower, with investors weighing how higher interest rates and soaring inflation will affect the upcoming earnings season. Stocks turned higher at midday, then reversed course in the final hour of trading after Mr. Bailey’s comments.
The S&P 500 fell 23.55 points, or 0.7%, to 3588.84. The Nasdaq fell 115.91 points, or 1.1%, to 10426.19.
The Dow Jones Industrial Average edged up 36.31 points, or 0.1%, to 29239.19, aided by big gains in Amgen Inc. AMGN 5.72% ▲ The biotech stock jumped $13.29, or 5.7%, to $245.44, making it the best performer in the Dow on Tuesday.
Mr. Bailey’s comments were taken as negative on Wall Street because they raise the prospect of further asset sales by U.K. pension funds in the face of large interest-rate increases.
The program of bond buys launched Sept. 28 had been intended to give the funds a “window of opportunity” to sell assets in an orderly fashion, but Mr. Bailey said that opportunity would end on Oct. 14.
“You’ve got three days left,” Mr. Bailey said in remarks addressed to pension funds. “You’ve got to get this done.”
Some traders said that the earlier midday bounce higher was not so much a sign of strength, but rather a sign of so-called short covering.
Some traders make money by betting that stocks are headed lower. To do so, they borrow shares and sell them, hoping to profit by buying these shares back at a lower price at a later date. When stocks start to climb, those gains can be accelerated by short sellers covering their bets by buying shares. But Mr. Bailey’s comments scared off many buyers.
“No one wants to hold a position overnight if they think it’s going to open up weaker the next day,” said Mohit Bajaj, director of ETF trading solutions at WallachBeth Capital.
Investors have been grappling throughout the year with the effects of decades-high inflation and the Federal Reserve’s attempts to tame it with higher interest rates . For many, the concerns have grown deeper in recent weeks as inflation remains stubbornly high and traders worry that the Fed will cool the economy so much that it tips into a recession.
“The question now is not if there will be a recession, it’s when and how bad,” said Justin Wiggs, managing director in equity trading at Stifel Nicolaus. One week ago, traders were cheering the biggest two-day rally in the Dow and S&P 500 in two years, but stocks have fallen steadily since then. Both the Dow and the S&P 500 remain in bear markets.
Meanwhile, investors are bracing for the first wave of major corporate earnings reports due this week, which are expected to show companies struggling with high rates and weakening consumer demand. PepsiCo reports Wednesday while financial titans such as BlackRock , JPMorgan Chase and Morgan Stanley report later in the week.
“First-quarter and second-quarter earnings came in remarkably well. The third quarter may be the pivot point at which we see earnings cannot keep growing to the sky, and that companies are subject to the economic headwinds we are facing from all kinds of directions,” said David Donabedian, chief investment officer at CIBC Private Wealth US.
And what’s even more important than third-quarter results, some investors say, is the guidance corporate leaders give about next year.
Yields on benchmark U.S. government bonds continued their ascent, coming within sight of the 4% level . The yield on the benchmark 10-year Treasury note rose to 3.938%, its second-highest level of the year, from 3.883% on Friday. The U.S. bond market was closed Monday for the Columbus Day holiday.
In commodity markets, oil weakened as concerns about the economy returned to the fore. Prices rose last week after the Organization of the Petroleum Exporting Countries and its Russia-led allies agreed to slash their output. On Tuesday, Brent crude, the international oil benchmark, shed 2% to $94.29 a barrel.
Overseas indexes slumped. In Japan, the Nikkei 225 fell 2.6%. Hong Kong’s Hang Seng closed 2.2% lower, hitting its lowest level in more than a decade.
In Europe, the pan-continental Stoxx Europe 600 fell 0.6%, led by losses among its oil-and-gas and chemicals companies.
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