Investors were still processing statements from Federal Reserve officials on their efforts to combat inflation, and Wall Street struggled to end a three-day losing run on Wednesday.
With this 76-point drop, the Dow Jones Industrial Average has entered the bear market. The S&P index fell by 0.1%, while the Nasdaq composite index was down by 0.2%.
With these changes, the Dow and S&P 500 are now about 7% and 10% above their mid-June lows.
The Nasdaq has gained almost 13% from its low point. After reaching the bottom on June 16, the summer rally peaked two weeks ago, on August 16.
The month, which started well for the main averages, is now on track to conclude on a worse note.
Both the S&P 500 and the Dow seem sure to close the month of August down by about 3%. Currently, a 4% drop is likely for the Nasdaq.
Many investors believed the Fed would slow its rate-hiking schedule if the economy entered a recession, a topic of heated debate among investors for weeks.
However, Friday in Jackson Hole, Powell reaffirmed the central bank’s dedication to controlling inflation and promised to keep raising interest rates despite the economic downturn.
“Markets were expecting minimal rate hikes and swift rate reduction,” said Brad McMillan, chief investment officer at Commonwealth Financial Network.
Instead, there was no mistaking the speech’s message: “The rises will be higher, and the cutbacks will be postponed further than anybody imagined.”
Since last Friday, stocks have suffered a steep decline. On Wednesday, Cleveland Fed President Loretta Mester echoed Powell’s forecast that benchmark interest rates will exceed 4% by the beginning of next year.
New York Fed President John Williams advocated for a “slightly restrictive policy to reduce demand” on Tuesday.
Despite the shock that the current drop has caused investors, there may be reasons for cautious optimism.
According to Jeff Kilburg, chief investment officer at Sanctuary Wealth, as quoted by CNBC, “this volatility is excellent and beneficial.”
However, this de-risking process does not feel nice, and the Fed’s velocity injection has left many investors gasping for air.
In his opinion, the rising Treasury rates are only one of several indicators that things are looking up.
He said the market’s rise from 3,600 to 4,300 in only 19 trading sessions was unsustainable.
To quote one investor: “Seeing the market bounce back and the S&P 500 filling volume around 4,000 is incredibly encouraging and enables us to have a foundation taking another leap higher with the background of earnings season which is stronger than anticipated and the consumer mood steadily upticking.”