S&P 500, Nasdaq collapses as weak economic data, dire prospects increase fears of recession

  • Snap Inc falls, profit fears hit rival social media
  • Abercrombie & Fitch fall after reduced revenue prospects
  • Indices: Dow up 0.15%, S&P down 0.81%, Nasdaq down 2.35%

NEW YORK, May 24 (Reuters) – The S&P 500 and Nasdaq ended in the red on Tuesday when concerns that aggressive measures to curb decades-high inflation could tip the US economy into recession dampened investors’ risk appetite.

All three major US stock indices reduced their losses in afternoon trading, with the blue-chip Dow being positive. Nevertheless, the S&P 500 ended just 2.2 percentage points above, confirming that it has been in a bear market since reaching its record high on 3 January.

“When we go back and recognize the primary market catalysts, it has really been about the Fed pivot and the change in interest rates, which has affected prices across capital markets,” said Bill Northey, senior investment director at US Bank Wealth Management in Helena, Montana.

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“Over the last two weeks, we’ve seen a degree of macroeconomic deterioration begin to manifest in corporate earnings and financial releases.”

Much of the sale was driven by a profit warning from Snap Inc, which sent the company’s shares down 43.1%, triggering contagion throughout the social media segment.

Meta Platforms Inc (FB.O), Alphabet Inc (GOOGL.O), Twitter Inc and Pinterest Inc fell between 5% and 24%, and the broader S&P 500 Communications Services sector (.SPLRCL) fell 3.7%.

Global supply chain disruptions have been exacerbated by Russia’s war with Ukraine and restrictive measures in China to control the recent COVID-19 outbreak, and have sent inflation to peaks for decades.

The US Federal Reserve has promised to aggressively tackle sustained inflation by increasing borrowing costs, and minutes of the last monetary policy meeting, expected on Wednesday, will be analyzed by market participants to find clues about the speed and scope of these actions.

Investors are currently expecting a series of 50 basis point rate hikes over the next few months, fueling fears that the central bank may push the economy into recession, a scenario that is increasingly being baked into analyst forecasts.

“Tomorrow we look at the FOMC protocol for signs that the monetary policy approach may be more hawkish or dove-like than what was posted at the previous meeting,” Northey told US Bank Wealth Management.

Data released on Tuesday painted a picture of declining economic momentum, with sales of new homes plummeting and business activity declining.

Fed Chairman Jerome Powell’s counterpart in Frankfurt, President of the European Central Bank Christine Lagarde, said she expects the ECB’s deposit rate to be raised by at least 50 basis points by the end of September, read more

The Dow Jones Industrial Average (.DJI) rose 48.38 points, or 0.15%, to 31,928.62; The S&P 500 (.SPX) lost 32.27 points, or 0.81%, to 3,941.48; and the Nasdaq Composite (.IXIC) fell 270.83 points, or 2.35%, to 11,264.45.

Six of the 11 major sectors in the S&P 500 ended the session in negative territory, with communications services and consumer discretion (.SPLRCD) suffering the largest percentage losses.

Clothing retailer Abercrombie & Fitch Co (ANF.N) fell 28.6% after posting a surprising quarterly loss and cutting its annual sales and margins. read more

Work from home dear Zoom Video Communications Inc (ZM.O) jumped by 5.6% after the full year increase in earnings due to solid demand for companies. read more

Falling issues were more than advancing on the NYSE with a ratio of 1.28 to 1; on the Nasdaq favored a ratio of 2.37 to 1 declines.

The S&P 500 posted three new 52-week highs and 40 new lows; The Nasdaq Composite recorded 17 new highs and 443 new lows.

Volume on US stock exchanges was 11.78 billion shares, compared to the average of 13.33 billion in the last 20 trading days.

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Reporting by Stephen Culp; additional reporting from Devik Jain and Anisha Sircar in Bengaluru; edited by Jonathan Oatis

Our standards: Thomson Reuters Trust Principles.

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