U.S. stocks closed mixed on Tuesday, with the S&P 500 closing at a new 2022 low and the Dow Jones Industrial Average falling deeper into a bear-market, a day after a tumultuous trading period.
The S&P 500 was off by roughly 0.2% after dipping below its June 16 intraday low, while the Dow Jones Industrial fell more than 100 points, or roughly 0.4%. The tech-heavy Nasdaq Composite was an outlier — up about 0.3% on the day.
Treasury yields continued their ascent, with the 10-year note narrowing in on 4% — the highest since 2010 — and the 2-year Treasury note topping 4.3%, a 15-year high. The CBOE Volatility Index (^VIX), which measures Wall Street’s expectations for short-term market volatility, continued its climb to top 32, its highest reading since June 17.
Fedspeak kept investors busy on Tuesday. In a live interview with the Wall Street Journal, Minneapolis Federal Reserve Bank President Neel Kashkari said he and his colleagues were “united” in taking aggressive measures to combat inflation.
“We are committed to restoring price stability, but we also recognize, given these lags, there is the risk of overdoing it on the front end, and so I think we are moving at an appropriately aggressive pace,” Kashkari said.
Earlier in the day, Chicago Fed President Charles Evans said while speaking at a forum in London that the U.S. central bank will need to raise interest rates by at least another percentage point this year but does not see the labor market heading into “recession-like” conditions.
Tuesday’s moves in markets come as Wall Street increasingly anticipates the Federal Reserve’s rate-hiking campaign to fight inflation will result in an economic downturn. Chair Jerome Powell repeatedly warned of some “pain” in a speech last week following the central bank’s latest policy announcement.
“We have always understood that restoring price stability while achieving a relatively modest decline in unemployment and a soft landing would be very challenging and we don’t know whether this process will lead to a recession or if so, how significant that recession would be,” he said.
As the major averages slipped below their June 16 lows, strategists are wondering how much lower the indexes have to fall as Fed policymakers proceed with more rate increases and, on the corporate side, analysts begin to slash earnings expectations.
Morgan Stanley’s Mike Wilson, among the most bearish of analysts on stocks, expects an acceleration in downward earnings revisions in coming months will push stocks lower, projecting that the S&P 500 will reach a range of 3,000-3,400 later this fall.
Meanwhile, Chris Larkin, managing director of trading at Morgan Stanley’s E*TRADE, was more optimistic.
He said in a note: “Many traders and investors may not have noticed that last week’s slide put the SPX back below its bear-market threshold, and as unwelcome the milestone may be, historical tendencies show the worst was often over by the time the SPX first hit the bear-market threshold — which in this case, was a little more than three months ago.”
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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