U.S. stocks wobbled and bond yields fell amid continued investor concerns about the health of the economy. 

The major indexes dipped early in Thursday’s session, with the S&P 500 flirting with bear market territory—market shorthand for a 20% fall from a recent high—a day after tumbling 4%. They later recovered ground, but were all on track to post weekly losses of at least 2.7%. Concerns about consumer spending, which helped lift the market out of pandemic lows, have weighed on stocks and bond yields.

The S&P 500 was recently up 0.5%. The Dow Jones Industrial Average fell about 0.1%, putting it about 15% below its record close. The Nasdaq Composite Index, which entered bear-market territory earlier this year, was recently ahead about 1%.

Investors bought government bonds, perceived as a haven asset in times of economic uncertainty. The yield on 10-year Treasury notes fell to 2.853% from 2.884% Wednesday. Thursday’s move put yields, which had shot up for much of the year as the Federal Reserve began to raise interest rates, on course to fall for seven of the past nine trading days. Bond yields and prices move in opposite directions.

Earnings reports from some of America’s biggest retailers in recent days have added to concern that the highest rate of inflation in four decades is catching up with U.S. consumers and pitching the economy toward a recession. Investors were already grappling with the end of an era of loose monetary policy that stoked big gains for stocks and other riskier assets.

The combination of factors has recently fed into steep losses for stocks and some corporate bonds, and many investors expect the volatility to continue. “The price action suggests it’s not over,” said

Philip Saunders,

a portfolio manager at

Ninety One,

an asset manager based in the U.K. and South Africa.

Kohl’s,

shares of which gained 3.9% after executives said suitors remained interested in buying the company, said sales weakened in April, making it the latest retailer to point to inflationary pressures on demand.

Walmart

and

Target

this week said higher costs ate into profits in the latest quarter, leading to a selloff of their shares that rippled through the broader market.

In economic news, the Labor Department said new applications for unemployment benefits rose for the third week in a row. Initial jobless claims, a proxy for layoffs, remain historically low. Separately, U.S. home prices reached a high in April, according to fresh data, while the number of sales fell.

Anthony Saglimbene,

global markets strategist at Ameriprise Financial, said economic data points to healthy consumer spending, allaying fears of a recession.

“For consumers to really retrench spending, they have to fear that they’re going to lose their jobs and that’s just not the environment we’re in,” said Mr. Saglimbene.

Some analysts, however, say a slowdown in consumer spending could mean the Federal Reserve wouldn’t have to raise interest rates as aggressively to lower consumer demand.

“Some amount of slowdown in discretionary spending will help organically or naturally ease the supply-chain constraints,” said

Seth Wunder,

Acorns’ chief investment officer. “At the end of the day, that is one of the largest inputs to the inflationary issues we’re facing.”

The war in Ukraine is adding to the inflationary pressures prompting the Fed to embark on a series of interest-rate rises and to reduce its bond holdings. And Covid-19 shutdowns in China have led to a sharp slowdown in the world’s second-biggest economy. Some investors say that higher interest rates ahead will normalize return expectations among investors.

“We’re going through a recalibration process and that’s a good thing,” said

Todd Lowenstein,

chief equity strategist of The Private Bank at Union Bank. “In the short run it will be painful, but sometimes you need short-term pain to recondition behavior.” Mr. Lowenstein said his firm prefers dividend-paying and value stocks over growth.

Cisco Systems tumbled 14% after the communication-equipment firm missed analyst expectations for its quarterly results.

BJ’s Wholesale Club

said gasoline sales boosted revenue and profit in its first quarter, sending shares 10% higher.

“The critical bit here is how earnings hold up,” said

Desmond Lawrence,

senior investment strategist at State Street Global Advisors. “We’re in a very uncertain time, so we expect more volatility.”

Markets have been looking increasingly shaky recently: Stocks, bonds and crypto have all been falling as investors struggle to manage the large swings roiling financial markets around the globe. WSJ’s Caitlin McCabe looks at some of the causes behind the recent market frenzy. Photo: Spencer Platt/Getty Images

The last time the S&P 500 fell into a bear market was during the pandemic panic in March 2020. It was short-lived, and the market quickly embarked on a two-year rally that peaked this Jan. 3. The Dow industrials, which are more weighted to old-line industrial companies and banking stocks, have performed less badly and are still some way from bear market territory.

“Throw monetary policy tightening into the mix, we’ve got a recipe for volatility and investor jitteriness,” said

Clara Cheong,

a global market strategist at J.P. Morgan Asset Management.

Global oil benchmark Brent crude gained 2.7% to $112.04 a barrel. In cryptocurrency markets, bitcoin added 3.2% from its 5 p.m. ET level on Wednesday to trade at $30,138.

In Hong Kong, stocks of Chinese internet companies dragged down wider benchmarks.



Photo:

Kin Cheung/Associated Press

International stocks retreated. The Stoxx Europe 600 shed 1.4%, led lower by shares of financial-services and food-and-beverage companies. Hong Kong’s Hang Seng Index tumbled 2.5%.

Elsewhere in Asia, the CSI 300 index of the largest stocks listed in Shanghai and Shenzhen edged up 0.2%. Japan’s Nikkei 225 dropped 1.9% and South Korea’s Kospi Composite declined 1.3%.

—Dave Sebastian contributed to this article.

Write to Joe Wallace at [email protected] and Hardika Singh at [email protected]

Corrections & Amplifications
The Nasdaq Composite Index fell into bear market territory in March. An earlier version of this article incorrectly said it did so in February. (Corrected on May 19)

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