COPY OF Wall Street poised to clinch bear market as S&P 500 tumbles

NEW YORK (Reuters) – The benchmark S&P 500 was down more than 20% from its Jan. 3 record closing high on Monday, as investors sold stocks amid worries over whether the Federal Reserve will be able to tame inflation without triggering a recession.

A close of more than 20% below the record high would confirm the index was in a bear market, according to a commonly-used definition. It would be the first time the S&P 500 has confirmed a bear market since the 2020 Wall Street plunge brought on by the COVID-19 pandemic.

MARKET REACTION:

STOCKS: The S&P 500 was down 3.12%.

BONDS: U.S. 10-year Treasury yields hit their highest level since 2011 on Monday and a key part of the yield curve inverted for the first time since April.

FOREX: The U.S. dollar index rose to a fresh four-week high.

COMMENTS:

KING LIP, CHIEF INVESTMENT STRATEGIST, BAKER AVENUE ASSET MANAGEMENT, SAN FRANCISCO

"We see a lot of nervous clients, and you know, being in the business for 25 years, that's typically the sign of things starting to bottom. But then the reason why the market is not bottoming, we think, is because there still remains a ton of uncertainty. And because of that, it's likely that it's going to be extremely choppy here. Even after the Fed, I think if the Fed doesn't give full clarity of what their intentions are, I think the volatility is going to remain so from that perspective, I think being defensive here is not a bad thing to do."

"I'm leaning toward the camp of ripping off the band aid, and ripping the band aid means getting aggressive, whether that means 75 basis points or whatever that number is … I do think that the ripping off the band aid approach is the approach that I think the market wants, rather than just sort of wishy-washy, you know, 'Yeah, maybe we'll do 50 or maybe we'll do 75'. This whole 'maybe' is what's really causing a lot of volatility in the markets."

ROSS MAYFIELD, INVESTMENT STRATEGY ANALYST, BAIRD, LOUISVILLE, KENTUCKY

"The market had been trying to rally around the idea that inflation has peaked, and the Fed would not have to be more aggressive. That story fell apart on Friday with the CPI report, showing broad inflation being entrenched everywhere you look."

Regarding recent signs of economic slowdown, "it all comes back to a highly aggressive Fed. It's hard to parse out who's responsible for what but the Fed has hits fingerprints all over any slowing."

"I don't think the Fed will or wants to surprise the market on Wednesday. They have gotten out of the business of causing shocks to the market because of their words or expectations, but for July and onward, 75 bp (interest rate hikes) are back on the table."

"If they use language like 'we'll do whatever is necessary to bring inflation in check,' to me that will translate to 75 basis point rate hikes."

On the S&P bear market confirmation: "It's an important level but a majority of the market was already 20% or more off their highs as of Friday. It's important, it's psychologically important, but we've been in a bear market for quite some time."

"To me the story from here is how earnings play out. It makes sense that multiples are contracting. To date, forward earnings have continued to rise. Obviously, there's been wage and materials inflation, and the extent to which earnings hold up is the most important thing from here."

(Reporting by Stephen Culp in New York and Noel Randewich in San Francisco)

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