NEW YORK – The stock market’s brutal year is nearing a terrible milestone as Friday’s S&P 500 slide threatens to release it into bear market for the first time since March 2020, due to skyrocketing inflation, a bizarre Federal Reserve and rising economic concerns.
The benchmark S&P 500 index fell below 3837.248, a fall that kept it at 20% from its January 3 record high closing on an intraday basis. This should be maintained until the Friday close, which will ensure that the indicator is in the bear market – often defined as a decline of at least 20% from the closing high.
If history is any guide, a bear market could mean more pain for investors. According to Sam Stovall, chief investment strategist at CFRA, the S&P 500 has declined by an average of 32.7% in 13 bear markets since 1946, including a 57% decline in bear markets during the 2007-2009 financial crisis.
According to the CFRA, the beer market time index took just over a year on average to reach its bottom and then another two years to return to its previous high. Between 1946 and 13 beer markets, the return to the breakeven level has changed, ranging from three months to 69 months.
The S&P 500 rose nearly 114% from its March 2020 low as stocks benefited from emergency policies to help stabilize the economy in the wake of the Covid-19 epidemic.
The fall was reversed in early 2022 as the Fed became much more reckless and indicated it would tighten monetary policy in a quicker-than-expected clip to fight rising inflation. It has already raised rates by 75 basis points this year and weighed on the prospect of further growth in stocks and bonds ahead.
Fed Chairman Jerome Powell has promised to raise rates as much as necessary to beat inflation but also believes that policymakers can guide the economy in the so-called soft landing.
Added to the unrest is the war in Ukraine, which has pushed up the price of oil and other commodities.
Several areas of the stock market have been exempted. Fuel stocks have risen along with oil prices this year, while defense groups such as utilities have held up better than the broader market.
On the other hand, shares of technology and other high-growth firms have hit hard. These stocks – high flyers for most of the bull market over the past decade – are particularly susceptible to high yields, which dampens the appeal of companies whose future cash flows are heavier and lower if they are discounted at higher rates.
Some of these companies, such as Tesla and Facebook’s owner Meta Platform, are big, as well as heavy on the S&P 500 index.
Investors have looked to different metrics to determine when the market will be higher, including the Cboe volatility index, also known as the Wall Street Fear Measure. Although the index has improved compared to its long-term average, it is still below the level reached by previous large sales.
(Reporting by Luis Krauskopf; Editing by Kirsten Donovan and Ira Yosebashvili)