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S&P 500 fends off a bear market at the end of another brutal week

Gas prices hit records as inflation fears intensify
Gas prices hit records as inflation fears intensify 03:23

Stocks clawed back losses on Friday, with the S&P 500 fending off a brief entry into bear market territory, its first in 20 years. 

The S&P closed up one point, or 0.01%, to 3,901, while the Dow Jones Industrial Average rose 9 points, or 0.03%, to 31,262. The tech-heavy Nasdaq slipped 0.3%.

All three indices fought drops of about 2% during the day, following a massive pullback two days ago.

The stock market remains volatile amid worries about how inflation is squeezing businesses and consumers. Investors are also concerned about the Federal Reserve's plan to aggressively raise interest rates and whether that will help temper inflation's impact or crimp growth too much and send the economy into a recession.

"This has been an especially worrying pullback, combining all of the things you really don't want to see," said Brad McMillan, chief investment officer for Commonwealth Financial Network, in a research note. "It has been the largest pullback since the start of the pandemic."

He added, "But the depth, the speed, and the duration all combine to suggest that as long as the fundamentals are sound (as they are), we are likely getting close to the bottom."

The market is pricing in the Fed's likelihood of aggressively raising interest rates later this year, as well as a cooling economy, said analyst Adam Crisafulli of Vital Knowledge Media, in a research note. The labor market is also "coming off a boil" as some companies scale back on hiring plans. Yet other economic measures remain strong, he added.

Consumer spending "is holding in well," said Crisafulli, who partly views the market's current downward trajectory as a natural response to the Fed's recent actions.

Meanwhile, the health care sector enjoyed gains on Friday. Pfizer rose 3.6%. The tech sector has been particularly choppy and prompted many of the big swings in the market throughout the week. Apple was down 0.3% in after-hours trading. 

Bond yields edged lower. The yield on the 10-year Treasury fell to 2.83% from 2.85% late Thursday.

China's surprise rate cut

Concerns about inflation have been growing heavier with Russia's invasion of Ukraine pushing energy and some key food commodity prices higher. China, the world's second-largest economy, took a renewed hit from lockdowns in key cities because of COVID-19 cases, but a surprise interest rate cut from the Chinese government has at least temporarily eased some anxiety.

Markets fell precipitously after bad earnings reports from Target and Walmart 02:02

Wall Street has been digesting earnings from retailers this week. The sector is a key focus as investors try to measure how much damage inflation is inflicting on company operations and whether higher prices on everything from food to clothing is prompting consumers to tighten their spending.

Industry bellwethers Walmart and Target both reported disappointing earnings this week, saying that higher costs for food, fuel and transportation reduced their profit margins. Both trimmed their earnings expectations for the year. In another sign consumers are pulling back, Amazon reported its first quarterly loss in seven years.

Discount retailer Ross Stores plunged 22.2% on Friday after cutting its profit forecast and citing rising inflation as a factor.

But the "consumer isn't nearly as weak as [Target] or [Walmart] would suggest," said Crisafulli, who cautions against views "clouded by a chorus of negativity."

If investors can "stop looking at day-to-day gyrations, there is a lot to be encouraged about," he said, "specifically the reopening of China, the peak of U.S. inflation/Fed hawkishness and the downward reset of equity multiples." 

Several retailers were rewarded for encouraging results. Ugg footwear maker Deckers Outdoor rose 18.6% and Foot Locker rose 5% after beating analysts' earnings forecasts.

Investors continue watching the Fed for hints of more interest rate hikes to cool inflation that is running at a four-decade high. Fed Chair Jerome Powell said this week the U.S. central bank might take more aggressive action if price pressures fail to ease. A major concern is that the Federal Reserve will raise interest rates too high and too fast, choking off economic growth.

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