Wall Street just had one of its wildest weeks in years. What happened and what could come next

Published Sat, May 7 20227:24 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The past week's wild market swings pushed the major averages below key levels, made big macro calls outdated within a few hours and rattled some of market's most resilient stocks. The Dow Jones Industrial Average followed its best day since 2020 on Wednesday with its worst day since 2020 on Thursday. The 30-stock index ended the week down 0.24% at 32,899.37, marking its sixth straight weekly decline. During the five-day stretch, the Dow traded as high as 34,117.74 and as low as 32,474.69. The Nasdaq Composite saw even wider swings, closing the week down 1.54% after a 3.19% jump on Wednesday and then tanking 4.99% on Thursday. The S & P 500 , which finished down 0.21% for the week, set a new intraday low for the year on Monday at 4,062.51, then jumped all the way back above 4,300 on Wednesday. However, it nearly took out Monday's lows on Friday. The bond market was far from immune from these swings. The benchmark 10-year Treasury yield touched 3.13% on Friday, its highest level since 2018, after falling to 2.905% on Wednesday. E-commerce stocks had a particularly rough week. Shopify dropped more than 11%, while Wayfair sank nearly 14%. Even Big Tech stalwart Amazon lost 7.6%. The Fed The ephemeral pivot point for the week was the Federal Reserve's policy announcement on Wednesday, and specifically Chair Jerome Powell's press conference. The central banker said that a 75 basis point hike was not on the table for upcoming meetings, which markets appeared to take as a positive signal on the economy, sparking a late afternoon rally. That optimism didn't last long, however, as stocks opened sharply lower on Thursday — with losses accelerating throughout the day. The major averages added to those declines on Friday. "Current market sentiment does not place a lot of confidence in the Fed getting inflation under control without a recession. This skepticism may be warranted as most Fed tightening cycles have led to recession, though near the end of – or after - the tightening cycle," said David Donabedian, chief investment officer of CIBC Private Wealth US. "We suspect this skepticism is likely to remain until there is clearer evidence that inflation has crested and has begun to fall appreciably. That could take several months." The volatile week came on the heels of a brutal April, which saw the Nasdaq post its worst month since 2008. That set up a potential relief rally for stocks, but they never found solid ground. "With the SPX down 12.6% YTD, R1000 Growth down 20.4%, and many high-fliers off~40%, we think much of the fear already is priced-in—but that does not seem to be the consensus view. This uncertainty has caused the modus operandi to morph into buying strength and selling weakness," Wells Fargo strategist Christopher Harvey said in a note to clients. In fact, with the S & P 500 and Nasdaq setting new lows for the year, some technicians see even further to fall . The "buy the dip" trade, which has been consistently strong for two years, appears to have run out of gas. "For most of the last decade, 'buy the dips' has been a profitable way to put cash to work. But rising interest rates and a plan to drain liquidity from markets is a buzz kill, so 'sell the bounces' may be more in vogue for a while," Donabedian said. What comes next From here, traders will be looking for concrete evidence that the Fed is making progress toward a soft landing – or "soft-ish," to use Powell's phrase – on bringing down inflation. Upcoming consumer pricing data, as well as developments on the labor and energy fronts, will be key focuses going forward. "What is critical here is you do get the Fed moving back toward a neutral policy benchmark ... if we can get there with some slowdown in earnings, but again soft landing type earnings, then I think there's still a path forward to the upside from here," Scott Chronert, Citi U.S. equity strategist, said on CNBC's " Squawk on the Street " on Friday. "We've been most focused in navigating this volatility by playing things such as quality, from a factor perspective. Those companies that have some built in inflation resistance, if you will, that also have strong balance sheets and strong profitability characteristics." Stocks now appear much cheaper than they did just a few weeks ago and are trading at major discounts from November. However, strategists and investors seem reluctant to jump back in . There may be a few places for investors to nibble in the meantime. For example, Kevin Simpson of Capital Wealth Planning said in during CNBC Pro Talks event on Friday that he liked JPMorgan Chase . Frank Gretz, technical strategist at Wellington Shields, said in a note to clients that recent outperformer Hershey still had an attractive chart, and that there were some potential for a rebound in energy stocks. Still, it appears too early to call a market bottom. "The key in all of this is follow through. And Thursday's weakness made painfully clear a lack of follow through," Gretz wrote. "So it's back to looking for more washout numbers, more compression in stocks above their relevant moving averages, and better follow through. Hardly a silver lining, but the last two days may help get there faster." — CNBC's Michael Bloom contributed to this report.

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The past week's wild market swings pushed the major averages below key levels, made big macro calls outdated within a few hours and rattled some of market's most resilient stocks.