S&P 500 Falls Further After Entering Bear Market

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The S&P 500 continued its slide on Tuesday, a day after it closed in a bear market for the first time since 2020. 

The broad market index fell 14.15 points, or 0.4%, to 3735.48, ending the session lower after it seesawed between gains and losses for much of the day. The Dow Jones Industrial Average dropped 151.91, or 0.5%, to 30364.83. The Nasdaq Composite rose 19.12, or 0.2%, to 10828.35. 

On Monday, the S&P 500 tumbled 3.9% as global markets slumped on concerns that major central banks will have to move more aggressively than expected to combat inflation. A data release last week on U.S. consumer prices stoked those fears, as inflation reached its highest level in more than four decades.

The S&P 500 has fallen 9.6% so far in June, its worst performance during the first 10 trading sessions to a month since 2008. It is down 22% from its latest closing record, which it hit in early January.

“The mood’s bad,” said Michael Mullaney, director of global markets research at Boston Partners. “History does not bode well for the market when it goes down into bear-market territory.”

In previous bear markets since World War II, the S&P 500 has fallen a further 12.4 percentage points on average from the date the 20% mark was breached, Mr. Mullaney’s data shows.

Compounding investors’ jitters is concern that the Federal Reserve’s efforts to fight inflation will push the U.S. economy into a recession. The Fed is set to release a monetary policy decision on Wednesday, after a two-day meeting. The Wall Street Journal reported on Monday that the policy makers are considering a 0.75-percentage-point interest-rate increase. Futures markets have priced in a more-than-90% likelihood of such a rate increase being announced, according to data from exchange operator CME Group.

A recession could damage company profits and tip weaker companies into failure. One closely watched indicator flashed a warning sign that a recession could be ahead: The yield curve difference between two-year and 10-year government debt was inverted at times on Monday and Tuesday. The spread between the two yields widened to as much as 0.0522 percentage point late Monday, before flattening out on Tuesday morning. The U.S. yield curve last inverted in April.

The yield on the benchmark 10-year Treasury note climbed to 3.482%, up from 3.371% on Monday. Prices rise when yields fall. 

The producer-price index, a measure of inflation for domestic producers, rose 10.8% on a 12-month basis last month. May marked the sixth consecutive month of double-digit annual gains for producer prices.

While many markets have come under pressure this year, rising rates have had a particularly large effect on speculative bets, including the shares of money-losing companies that were once pandemic darlings. Higher interest rates on safe-haven assets such as government bonds tend to reduce the relative appeal of riskier investments—and the perceived value of future cash flows—while lifting corporate borrowing costs.

“I don’t think we’re going to see anything like a V-shaped recovery,” Rick Pitcairn, chief investment officer at Pennsylvania-based multifamily office Pitcairn, said of the stock market. “The way we’ll rebuild will be in a more muted way—it won’t be right back to the high-speculation stocks.”

As markets react to interest-rate hikes and the threat of a recession, stocks are dropping closer to bear-market territory. WSJ’s Gunjan Banerji explains what it takes to push stocks back into a bull market and why it’s hard to predict when they’ll turn around. Illustration: Jacob Reynolds

Shares of business-software firm Oracle jumped $6.67, or 10%, to $70.72 after it reported a rise in quarterly sales that beat analysts’ expectations, driven by its cloud-computing division. Shares of oil producer Continental Resources surged $9.72, or 15%, to $74.22 after billionaire Harold Hamm offered to buy the shares his family doesn’t already own for around $4.3 billion.

Cryptocurrency exchange Coinbase fell 43 cents, or 0.8%, to $51.58 a share after it said it would reduce its workforce by nearly one-fifth. JPMorgan cut its price target for the stock. 

Bitcoin remained under pressure after selling off sharply in recent days. It traded at about $21,992 at 5 p.m. ET on Tuesday, losing 5.4% over the previous 24 hours. It is down about two-thirds from its record high from November.

In commodities, futures on Brent crude, the global oil benchmark, fell 0.9% to settle at $121.17.

Overseas, the pan-continental Stoxx Europe 600 fell 1.3%. In Asia-Pacific trading, Australian stocks led losses after the market reopened following a holiday. The S&P/ASX 200 index in Sydney erased 3.5%, its biggest one-day drop in percentage terms in more than two years. 

The Shanghai Composite Index rose 1%, while Hong Kong’s Hang Seng Index closed flat. Japan’s Nikkei 225 fell 1.3%. 

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Dave Sebastian at dave.sebastian@wsj.com

Shares in Asia remained under pressure on Tuesday.

Photo: franck robichon/Shutterstock

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