The S&P 500 sunk 100 points in the last two and a half hours of trading Thursday, sending fears of an impending stock market crash through the roof. Indeed, stocks have had a miserable start to the second quarter, leaving some investors wondering if this week’s pullback is just the beginning of a more malicious downturn.
Is it?
Well, it’s certainly too early to tell, but clearly, investors are unsure whether equities’ first-quarter rally has the legs to continue into the second quarter.
It appears investors turned bearish Thursday after Neel Kashkari, president of the Minneapolis Federal Reserve, suggested that the Fed may not cut rates at all this year unless inflation continues to ease. This is likely what caused the spontaneous 2% slip in the last several hours of trade.
Additionally, Q1 earnings estimates have slipped to 5.1% from 7.2% at the start of the year. However, it’s a relatively common trend for earnings estimates to fall slightly between the start and end of the quarter, with earnings then frequently beating the lower estimate.
Now, even despite yesterday’s slip, stocks are still up nearly 10% year-to-date. Indeed, the S&P has mostly been on a steady climb so far this year, with the widely watched index even hovering at all-time highs last week.
Is This Week’s Slip the Start of a Wider Stock Market Crash?
Despite yesterday’s fall, stocks are looking to end the week on a strong note. Indeed, the S&P is up 1.3% at the time of writing as investors respond to strong March jobs data.
The U.S. economy added a staggering 303,000 jobs in the third month of the year, far outpacing projections. This put unemployment at 3.8%, in line with projections.
While this is a positive sign for the economy, it does give the central bank further leeway to continue delaying rate cuts until later in the year.
According to the CME FedWatch Tool, the central bank has a 94.6% chance of holding rates steady at the upcoming May policy meeting. Although, the tool still estimates there’s a 58% chance of a rate cut at the June meeting.
“This good news is bad news for the bond market – it makes the Fed’s propensity to cut sooner and more often less likely and we may not see the first rate cut until July – but it could be good news for the stock market,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance. “To the extent that consumer spending and corporate profits are more important to investors than how soon (and how many times) the Fed will cut rates, then stock prices can move higher on this report.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
