Wall St deep in bear market as S&P 500 hits new two-year low

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By Shreyashi Sanyal and Ankika Biswas

(Reuters) - Wall Street's main indexes sank deeper into a bear market on Tuesday as an early rally in stocks faltered after Federal Reserve policymakers advocated more interest rate hikes even at the risk of slowing economic growth.

The benchmark S&P 500 erased gains of up to 1.7% by early afternoon trading to hit lows last seen in late November 2020, leaving investors worrying about how much further stocks would have to fall before stabilizing.

St. Louis Fed President James Bullard made a case for more rate hikes, while Chicago Fed President Charles Evans said the central bank will need to raise rates by at least another percentage point this year.

Analysts at Wells Fargo (NYSE:WFC) now see the U.S. central bank taking its target range for the Fed funds rate to 4.75%-5.00% by the first quarter of 2023.

"It's just a continuation of Jerome Powell's digging in and trying to really let markets, investors and the world know that we are going to have to continue to hike rates to get this inflation story that still remains unchecked... it'll be interesting to see if markets end in the red today," said Brandon Pizzurro, director of public investments at GuideStone Capital Management.

Pizzurro also warned of more pain for equities and said, "the worst is ahead of us and not behind us."

Most S&P 500 sector indexes turned lower, with the energy sector clinging to gains of 1.19%.

Rate-sensitive shares including Amazon.com Inc (NASDAQ:AMZN), Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT), Meta Platforms Inc and Tesla (NASDAQ:TSLA) Inc, shed early gains.

The benchmark U.S. 10-year Treasury yield touched its highest level in more than 12 years amid hawkish comments from Fed officials. [US/]

At 12:31 p.m. ET, the Dow Jones Industrial Average was down 164.66 points, or 0.56%, at 29,096.15, the S&P 500 was down 17.49 points, or 0.48%, at 3,637.55, and the Nasdaq Composite was down 21.24 points, or 0.20%, at 10,781.68.

Concerns about corporate profits taking a hit from soaring prices, an economic downturn and higher interest rates have roiled Wall Street in the past two weeks.

Analysts have cut their S&P 500 earnings expectations for the third and fourth quarters and for the full year. For the third quarter, profit for S&P 500 companies are seen rising just 4.6% year-over-year compared with the 11.1% growth expected at the start of July.

Declining issues outnumbered advancers for a 1.29-to-1 ratio on the NYSE. Advancing issues outnumbered decliners by a 1.01-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week high and 113 new lows, while the Nasdaq recorded 24 new highs and 323 new lows.