S&P 500 hits 2-year low on Federal Reserve rate tightening fears

S&P 500 hits 2-year low on Federal Reserve rate tightening fears

On Tuesday, the S&P 500 fell to its lowest level in almost two years because of concerns about the Federal ReserveFederal Reserve policy tightening, trading under its June trough, and leaving investors appraising how much more stocks would have to fall before stabilizing.

The central bank's top priority is to stamp out high inflation even at the risk of putting the economy into a recession after comments and aggressive actions by the US Federal Reserve signaled that the central bank's top priority is to stamp out high inflation.

The S&P 500 touched a session low of 3,623. It has fallen below its lowest point on an intraday basis since Nov. 30, 2020. A late rally helped push the index off its worst level of the day, but it still closed lower for a sixth straight session, as it lost 7.75 points, or 0.21%, to 3,647, after a late rally. 29 After the benchmark index fell more than 20% from its January high to a low on June 16, the S&P rallied into mid-August before running out of gas.

As long as the Fed continues to raise rates and investors don't anticipate an end to the rate hikes, I think this market is going to continue to be weak, said Tim Ghriskey, Senior Portfolio Strategist, Ingalls Snyder, New York.

The Fed Chair Jerome Powell's speech at Jackson Hole confirmed the Fed's resolve to fight inflation, followed by a third straight 75 basis point interest rate hike by the central bank last week. The index has fallen more than 12% since Powell's speech and has shown little signs of stabilizing.

Many analysts had looked at 3,900 as a strong technical support level for the index. That gave way 11 days ago, and it was four days in a row of selling.

When you have these cascades of selling like we have seen since the Fed, really, support doesn't really matter, you can slice right through it, said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska.

The logic and fundamentals are almost thrown out of the window because we are all wondering how hawkish the Fed is, and then you look around this week and all these central banks around the world have hiked rates. Detrick said that multiple central banks hiked their fees, which left investors wondering how hawkish they all will end up being.

Robert Pavlik, Senior Portfolio Manager at Dakota Wealth in Fairfield, Connecticut, said he is looking at a worst case of 3,000 for the S&P as a support level.

People are concerned about the Federal ReserveFederal Reserve, the direction of interest rates, the health of the economy, and the next couple of weeks with earnings season coming up and companies reporting less than expected earnings. There are signs of investor capitulation that can show that selling pressure is exhausted, according to analysts. But sell-offs this year have not contained all those ingredients - a drop in prices, a day of unusually high volume and a jump in the CBOE Volatility Index to 40 or above. Many investors think that selling has yet to be depleted.

Brian Jacobsen, Senior Investment strategist at Allspring Global Investments in Menomonee Falls, Wisconsin, said it goes down, you get decent volume but you don't necessarily have the classic signs of capitulation.

Maybe enough has changed over the years that some of the indicators aren't going to be a good guide for the future. That leaves investors looking for the next catalyst to help markets stabilize or get cheap enough for them to start buying again, such as signs that the Fed's actions may be taming inflation, a weakening of the labor market, and what the upcoming corporate earnings season may bring about.

On October 7 you get the employment situation report and the following week you get the inflation report, so we will be on pins and needles waiting to see what those numbers are, and then you have earnings, said Jacobsen.