US stocks rose sharply on Tuesday. S&P 500 plunges to new closing low and the Dow Jones Industrial Average entered an official bear market – a 20% or more drop from the latest high of a broad market index.
The S&P 500 was up 1.1% at the start of the session, while Dow Jones Industrial was up more than 200 points, or 0.7%. Technology stocks led the rise, with the tech-heavy Nasdaq Composite up 1.5%.
On Tuesday, Chicago Fed President Charles Evans said at a forum in London that the US central bank will need to raise interest rates by at least one more point but this year it does not see the labor market entering “recession-like” conditions.
Tuesday’s moves came as Wall Street predicted the Federal Reserve’s campaign to raise rates to fight inflation would escalate. cause an economic downturn. President Jerome Powell repeatedly warned of some “pain” In his speech last week following the central bank’s latest policy announcement.
“We have always understood that it will be very difficult to restore price stability while achieving a relatively modest decline and soft landing in unemployment, and we do not know whether this process will lead to a recession or how significant this recession will be,” he said.
CBOE Volatility Index (^VIXMeasuring Wall Street’s expectations for short-term market volatility), it reached its highest since June 17, staying well above the key 30 level. Treasury yields pulled back from a sharp rise, but the 10-year Treasury yield remained above 3.82%. It’s the highest since April 2010 – and the 2-year Treasury rating is over 4.2%, a 15-year high.
With the main averages falling below their June 16 lows, strategists are wondering how far the indices should fall as Fed policymakers continue to raise further interest rates and analysts on the institutional side begin to lower their earnings expectations.
Mike Wilson of Morgan Stanley, one of the stocks’ most bearish analysts, predicts that any acceleration in downward earnings revisions in the coming months will pull stocks down and the S&P 500 will reach the 3,000-3,400 range this fall.
Meanwhile, Chris Larkin, Morgan Stanley’s chief trading officer for E*TRADE, was more optimistic.
In a note, he said: “Many traders and investors may not have realized that last week’s drop has pushed SPX below the bear market threshold, and while this turning point is not welcome, historical trends suggest that the worst is usually over by then. SPX first reached its bear market threshold – which, in this case, was a little over three months ago.”
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Alexandra Semenova is a correspondent for Yahoo Finance. follow him on twitter @alexandraandnyc
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