Why Is the Stock Market Down Today? Dow Slides, S&P Dips Into Bear Market

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The stock market’s early rally didn’t last long on Friday, as the S&P 500 entered bear market territory, down more than 20% from its January record high.

In afternoon trading, the

Dow Jones Industrial Average
was down 412 points, or 1.3%, while the

S&P 500
was down 1.5%, and the

Nasdaq Composite
was down 2.1%. All three indexes began the day with gains. If the S&P 500 closes below 3837, it would officially be in a bear market. It touched 3810 this afternoon.

The Dow was on pace to post an eighth straight weekly loss, the worst losing streak since 1932. The S&P 500 and Nasdaq were on track to fall for seven straight weeks, their worst showing since 2001.

Much of the decline in investor confidence this week stems from lackluster retail earnings, which has raised fears that a consumer-led downturn is approaching, Canaccord Genuity analyst Martin Roberge noted, as both revenues and margins could come under pressure at these companies in the coming quarters. “[T]he surge in goods prices and inflation translates into demand destruction as consumers have little choice but to shift their spending patterns toward essentials,” he wrote.

That said, Roberge pointed to some silver linings, including the decline in U.S. bond yields, a leveling off for the U.S. dollar and commodities, and partial reopening in China. “These green shoots should allow markets to enjoy the typical relief rallies seen around the -20% correction mark,” Roberge wrote—but warned that if they don’t, a -30% correction could be next.

Speaking of China, sentiment was boosted earlier Friday after the People’s Bank of China lowered the key five-year prime loan rate for the second time this year. The move to 4.45% to 4.6% was the largest cut on record.

It’s the kind of narrative-changing move the market needed following Wednesday’s rout, which wiped out some $1.5 trillion in market value, but it hasn’t been enough to soothe investors’ jangled nerves.

The Federal Reserve, of course, is raising interest rates and draining money from the economy as it tries to get inflation under control. That’s raised the risk of a recession in the coming months if the Fed tightens too much. Still, there were signs on Thursday that the market was wrestling with how much more it needed to fall to reflect those risks.

“Historically, the S&P 500 has fallen an average of 29% around recession (median of 24%). The market is effectively already pricing in a 60%-75% chance of recession based on the average and median,” wrote Truist Advisory Services Chief Market Strategist Keith Lerner. That said, he noted that given the market’s recent decline and “current oversold backdrop, we would not be sellers at these levels for investors that are aligned with their longer-term allocation targets.”

Still, there could be some small hope to end the week. “The one silver lining from the selling of the past two days was that we managed to close well off from last week’s lows, suggesting a general reluctance to become too bearish too quickly,” said Michael Hewson, an analyst at broker CMC Markets. 

Cold comfort, that.

Overseas, the pan-European Stoxx 600 gained 0.7% and Hong Kong’s Hang Seng Index rallied 3%.

Here are some stocks on the move Friday:

Palo Alto Networks

(ticker: PANW) shot up 7.7% after the cybersecurity company reported stronger-than-expected results and raised its guidance. It saw sales rise 29% from a year earlier to $1.4 billion in the last quarter and expects revenue to touch as high as $1.55 billion in the current quarter.

Ross Stores

(ROST) tumbled 23.9% after its earnings and sales missed analyst forecasts. Its guidance was dreadful as well.

Deere

(DE) has fallen 13.8% despite reporting better-than-expected earnings.

Air France-KLM

(AF.France) rose 1.1% in Paris trading, after the airline group entered into discussions with private equity giant

Apollo Global Management

(APO) over a €500 million ($530 million) capital injection. Apollo shares rose less than 0.5% in the U.S. premarket.

Cie. Financière Richemont

(CFR.Switzerland) tumbled 13.1% in Zurich trading, after the luxury group behind brands including Cartier and Montblanc reported operating profit short of analysts’ expectations. The company’s chief financial officer suggested supply-chain disruptions weren’t over and that stagflation—slowing growth and inflation—represents the largest headwind.

Write to Jack Denton at jack.denton@dowjones.com and Teresa Rivas at teresa.rivas@barrons.com