The US Federal Reserve’s economic growth projections released on Wednesday were also striking, growing just 0.2% this year, rising to 1.2% for 2023.
The jitters were already present in the market after a number of companies – most recently FedEx Corp and Ford Motor Co – issued poor earnings prospects.
As of Friday, the S&P 500’s estimated third-quarter earnings growth is 5%, according to data from Refinitiv.
Excluding the energy sector, growth is -1.7%.
The S&P 500’s price-to-earnings ratio, a common measure of stock valuation, is 16.8 times earnings – well below the nearly 22 times the price-to-earnings ratio stocks had at the start of the year.
Nine of the top 11 S&P sectors fell, led by 2.2% and 1.7% declines in consumer discretionary and financial stocks, respectively.
Shares of megacap technology and growth companies such as Amazon.com Inc, Tesla Inc and Nvidia Corp fell between 1% and 5.3% as benchmark yields on US Treasuries hit an 11-year high.
Rising returns are particularly weighing on the valuations of companies in the technology sector, which have high projected future earnings and make up a significant proportion of market cap-weighted indices such as the S&P 500.
The S&P 500’s technology sector is down 28% so far this year, compared to a 21.2% drop in the benchmark index.
“If we continue to have sticky inflation, and if (Fed Chairman Jerome) Powell sticks to his guns, as he points out, I think we’re going into a recession and we’re going to see a significant drop in earnings expectations,” said Mike Mullaney, director of global markets in Boston. Partners.
“If this happens, under those circumstances, I strongly believe we’ll break 3,636,” he added, referring to the mid-June low of the S&P 500, the year’s weakest point.
The Dow Jones Industrial Average fell 107.1 points or 0.35% to 30,076.68, the S&P 500 lost 31.94 points or 0.84% to 3,757.99 and the Nasdaq Composite fell 153.39 points or 1.37 % to 11,066.81.
Major U.S. airlines — which have seen a rebound amid a surge in travel as the pandemic restrictions end — also fell, with United Airlines and American Airlines dropping 4.6% and 3.9%, respectively. This brought losses over the past three days to 11% for United and 10.6% for American.
Volume on US stock exchanges was 11.39 billion shares, compared to the full-session average of 10.91 billion over the past 20 trading days. The S&P 500 posted a new 52-week high and 123 new lows; the Nasdaq Composite recorded 18 new highs and 699 new lows.
Canadian stocks down
Canada’s main stock index fell to its lowest level in nearly two months on Thursday, weighed down by technology and health stocks, as investors continued to worry about the pace of rate hikes by major central banks.
The Toronto Stock Exchange’s composite S&P/TSX index ended 181.86 points, or nearly 1%, at 19,002.68, its lowest closing level since July 26.
“Global stocks are struggling as the world expects rising interest rates to trigger a much faster and potentially severe global recession,” Edward Moya, senior market analyst at OANDA, said in a note.
Price sensitive technology stocks fell 2.8%, while health stocks fell 2.3%. US crude oil futures were up 0.7% at $83.49 a barrel in volatile trading, focused on concerns over Russian supply.
Still, the energy group fell by 1.8%, while heavily weighted financials ended 0.7% lower.
Canadian retail sales, expected Friday, could provide clues to the strength of the domestic economy, with money markets expecting the Bank of Canada to raise interest rates further next month.