S&P 500 drops as market attempts recover from bear market

The S&P 500 fell on Wednesday, giving up some sharp gains from the previous session.

The Dow Jones Industrial Average was down 173 points, or 0.5%, while the S&P 500 was down 0.3%. The Nasdaq Composite Index is up 0.1%.

The moves come as growing fears of an economic recession continue to weigh on investors. Federal Reserve Chairman Jerome Powell told Congress on Wednesday that the central bank has the “determination” needed to bring down inflation, raising fears that strong monetary tightening could push the US economy into recession.

“At the Fed, we understand the difficulties that high inflation causes,” the Fed chair said to the Senate Banking Committee. “We are strongly committed to bringing inflation back down, and we are moving quickly to do so.”

Powell added that the Fed will stay on track until it sees “compelling evidence that inflation is trending lower”.

Stocks had their worst week in a bear market last week as the Federal Reserve raised interest rates by 0.75 percentage points and hinted at the possibility of another increase of that size next month. The change in the Fed’s tone last week to a more aggressive anti-inflation stance alarmed investors who now believe the central bank would rather risk a recession than endure persistently high inflation.

Some Wall Street banks raised the odds of a decline this week, as Citigroup raised the chances of a global recession to 50%, citing data that consumers are starting to back away from spending.

“History experience shows that reducing inflation often has significant costs to growth, and we see the overall probability of a recession now approaching 50%,” a note from Citigroup read.

Goldman Sachs believes a recession is becoming increasingly likely for the US economy, saying the risks of a recession are “higher and more significant”.

“The main reasons are that our core growth trajectory is now lower, and that we are increasingly concerned that the Fed will feel compelled to respond aggressively to higher core inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply,” the company said in a note. to customers.

Meanwhile, UBS said Tuesday in a note to clients that it does not expect a US or global recession in 2022 or 2023 in its base case, “but it is clear that downside risks are rising.”

“Even if the economy does indeed slip into recession, it should be superficial given the strength of consumer and bank balance sheets,” UBS added.

Energy stocks were hit as oil prices fell amid fears that a slowing economy would hurt fuel demand. Brent crude futures fell nearly 6% to $107.78 a barrel. West Texas Intermediate crude, the benchmark for US oil, fell 6.5% to $102.38 a barrel.

Shares of Marathon Oil and ConocoPhillips fell more than 5%, while shares of Occidental Petroleum fell 4%. Exxon Mobil stock fell 3%.

On Wednesday, the White House released a fact sheet in which it called for Congress to suspend federal taxes on gasoline and diesel for three months. This effort is intended to relieve pressure on the pump on consumers during an election year.

Stock Picks and Investment Trends from CNBC Pro:

On Tuesday, the Dow was up 641 points, or 2.15%. The S&P 500 rose 2.45%, turning around on its best day since May 4. The jump comes after the benchmark index fell 5.79% last week in its worst weekly performance since March 2020.

The Nasdaq Composite advanced 2.51% on Tuesday, after the 10th week of losses in the past 11 weeks.

On the earnings front, KB Home will release results after the market closes on Wednesday.

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