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May 19, 2022, 4:34 p.m. EDT

Dow, S&P 500 and Nasdaq end with back-to back losses following worst day in about 2 years

By Joy Wiltermuth and William Watts

U.S. stocks gave up earlier gains to end lower Thursday, following the worst slide in nearly two years for the S&P 500 index in the previous session, leaving it down almost 19% from its record, or close to a bear market.

What happened

  • The Dow Jones Industrial Average (DOW:DJIA) fell 236.94 points, or 0.8%, ending at 31,253.13, after trading about 300 points higher in the session.

  • The S&P 500 (S&P:SPX) lost 22.89 points, or 0.6%, finishing at 3,900.79, after flipping between small gains and losses.

  • The Nasdaq Composite (NASDAQ:COMP) shed 29.66 points, or 0.3%, closing at 11,388.50.

  • The Dow and S&P 500 also booked their lowest closes since March 2021, according to Dow Jones Market Data.

On Wednesday, the Dow Jones Industrial Average fell 1,165 points, or 3.6%, the S&P 500 declined 4%, and the Nasdaq Composite dropped 4.7%. The drop on Wednesday for the Dow and S&P 500 was the most since June 11, 2020.

What drove markets

The S&P 500 finished closer to bear-market territory as the Russia-Ukraine war, a slowdown in China’s economy, high inflation and rising interest rates cause investors to worry about corporate profits and economic growth.

“It’s kind of a piling on,” said Joe Quinlan, head of chief investment office market strategy at Merrill and Bank of America Private Bank, by phone. With retailers reporting the pinch of higher costs, questions have begun to percolate around if the U.S. could have a recession sooner than later.

“Retail cuts right at the heart of what drives the U.S. economy, i.e. consumers,” Quinlan said, adding that while the savings rate has come down from pandemic highs, the employment picture remains strong, even as it has gotten harder for many households to meet their energy and rent bills.

Stocks have been choppy since Wednesday’s disappointing results from Target Corp. (NYS:TGT) . Its earnings miss , a day after rival retailer Walmart (NYS:WMT) also disappointed with its quarterly results, unnerved investors already rattled by the Federal Reserve’s interest-rate-hike campaign.

Read: S&P 500 earnings are another potential `shock’ awaiting financial markets trying to shake off stagflation f ears: economist

“We are at washed-out sentiment levels,” said Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management, by phone. While he pointed to signs of some stability for equities on Thursday, he also talked of concerns about a potential economic slowdown as the S&P 500 moves closer to a bear market, or a drop of at least 20% from its last peak.

“Right now, we are still thinking that things are likely to continue to slow, in term of growth, but avoid a recession,” Stucky said, while noting that consumers have been switching to spending on services, over goods, catching big retailers off guard. Credit markets, which typically sniff out an economic slowdown before stocks, also haven’t been flashing clear warning signs yet, he said.

Shares of retailer Kohl’s Corp. KSS closed 4.4% higher, after reporting a wide miss on profit and sales, following an 11% drop amid the retailer rout on Wednesday.

Analysts noted that Target’s results showed consumers moving away from stay-at-home goods like furniture and televisions. The U.S. retail sales report released this week showed spending at bars and restaurants up nearly 20% from year-earlier levels, or more than double the overall retail spending rate.

See: Melvin Capital’s liquidation may have been the mystery catalyst behind Wednesday’s plunge in stocks

In U.S. economic data Thursday, first-time claims for unemployment benefits rose 21,000 last week to 218,000. The Philadelphia Federal Reserve’s regional manufacturing index dropped sharply to 2.6 in May, a two-year low, from 17.6 a month earlier.

Existing-home sales fell 2.4% to a seasonally adjusted annual rate of 5.61 million in April, the National Association of Realtors said Thursday. Compared with April 2021, home sales were down 5.9%. Economists polled by The Wall Street Journal had expected a decrease to 5.64 million units.

Companies in focus

  • Shares of Harley-Davidson Inc. (NYS:HOG) tumbled 9.3% Thursday, after the motorcycle maker said it would suspend all assembly and shipments for two weeks.

  • Tesla Inc. (NAS:TSLA) shares edged 0.1% lower after Wedbush analyst Dan Ives slashed his price target by 29%, citing “hard to ignore” headwinds in China, as COVID-related lockdowns have reduced demand. Ives reiterated the outperform rating he’s had on the electric vehicle maker since April 2021 but cut his price target to $1,000 from $1,400.

  • Cisco Systems Inc. (NAS:CSCO) shares fell 13.7% to lead Dow decliners after the network-equipment maker logged third-quarter revenue below analysts’ expectations and guided for lower fourth-quarter and fiscal 2022 revenue .

  • Further proving it wasn’t all gloom for the retail sector, shares of BJ’s Wholesale Club Holdings Inc. (NYS:BJ) jumped 7.4% after the membership-based warehouse retailer reported fiscal first-quarter profit, revenue and same-store sales that rose above expectations .

  • Spirit Airlines Inc. (NYS:SAVE) on Thursday said its board has unanimously determined that JetBlue Airways Corp.’s (NAS:JBLU) $30-a-share cash offer isn’t in the best interest of the airline and its shareholders, urging the latter to reject the tender launched by JetBlue earlier this week. Spirit had already reiterated earlier in May its support for the merger deal with Frontier Group Holdings Inc. (NAS:ULCC) , that it had agreed before JetBlue made its offer. Spirit share fell 1.7%, while JetBlue shares rose 3.3% and Frontier gained 0.4%.

What other assets did

  • The yield on the 10-year Treasury note (XTUP:BX:TMUBMUSD10Y) fell 3 basis points to 2.854%. Yields and debt prices move opposite each other.

  • The ICE U.S. Dollar Index (IFUS:DXY) dropped 0.9%.

  • Bitcoin (COINDESK:BTCUSD) was up 2.9% near $30,000.

  • Oil futures rose, with the U.S. benchmark (NYM:CL.1) closing up 2.7% at $109.89 a barrel. Gold futures (NYM:GC00) closed up 1.3% to settle at $1,841.20 an ounce.

  • The Stoxx Europe 600 (STOXX:XX:SXXP) closed down 1.4%, while London’s FTSE 100 (FTSE:UK:UKX) dropped 1.8%.

  • The Shanghai Composite (SHG:CN:SHCOMP) rose 0.4%, while the Hang Seng Index (HONG:HK:HSI) dropped 2.5% in Hong Kong and Japan’s Nikkei 225 (NIKKEI:JP:NIK) shed 1.9%.

—-Steve Goldstein contributed reporting

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