Wall Street stocks stabilize after biggest selloff since 2020

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U.S. stocks stabilized on Thursday after the worst selloff since the early days of the pandemic as investors navigate a tricky outlook for global stocks marred by inflation and signs of slowing growth.

The S&P 500 fell 1.2% in morning trading on Thursday, but edged higher at lunchtime on Wall Street. The tech-heavy Nasdaq Composite gained 1.2%. Both gauges had come under heavy selling pressure in the previous session, with the S&P losing 4% in the worst selloff since June 2020 and the Nasdaq dropping 4.7%.

Thursday’s swings reflect deep investor uncertainty about the outlook for growth and inflation at a time when central banks, led by the US Federal Reserve, are rolling back stimulus that has helped support the global economy over the past of the past two years.

“There has been a violent and vicious decline [on Wednesday] and then you get these rallies that follow,” said Patrick Spencer, vice president of equities at RW Baird. “Volatility is definitely not going away. . . there is more volatility and weakness ahead.

Disappointing earnings reports in recent days from major U.S. corporations, including retailers Walmart and Target and networking group Cisco, have shown how U.S. businesses are grappling with headwinds including soaring input costs, war in Ukraine and slowing growth in China.

However, many Wall Street investors and banks still expect the US economy to avoid a sustained slowdown in economic output.

“A recession is not inevitable, but clients are constantly asking what to expect from stocks in a recession,” said David Kostin, chief US equity strategist at Goldman Sachs, adding that the Wall Street bank expected about one in three risks a recession in the United States over the next two years.

Still, JPMorgan late Wednesday cut its forecast for gross domestic product growth in the second half of this year to an annualized rate of 2.4% from 3% previously, citing tightening financial conditions.

“Financial conditions have tightened because, as President [Jay] Powell said recently that the Fed needs to slow growth,” said Michael Feroli, JPMorgan’s chief US economist.

Long-term US government bonds rose in price on Thursday, reflecting growth jitters. Price gains pushed the yield on the benchmark 10-year Treasury note down 0.04 percentage points to 2.84%, from a high of 3.2% last week. The closely watched yield on the German 10-year Bund also fell back below 1%, a sign that investors are looking for safety.

Falling US yields put pressure on the US dollar. The dollar index, which measures the greenback against six other currencies, slipped 1%, while the euro and pound rallied 1.2 and 1.4% respectively.

Britain’s FTSE 100 index, which is full of exporters benefiting from a weaker pound, led European markets lower on Thursday with a 1.8% drop. The regional Stoxx Europe 600 index fell 1.4%.

Additional reporting by Primrose Riordan in Hong Kong and Naomi Rovnick in London

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