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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

Dow, S&P 500 end at lowest levels since March 2021

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

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. (TGT). Its earnings miss, a day after rival retailer Walmart (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 fears: 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

What other assets did

---Steve Goldstein contributed reporting

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(END) Dow Jones Newswires

05-19-22 1634ET

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