Bear market beckons as US stock slides deepen

ryanniesMay 20, 2022

Stocks as New York — Friday’s S & P 500 slide threatened to leave it in the bear market for the first time since March 2020, boosted by high inflation in the sky, hawkish federal reserves, and concerns about the future economy. The cruel years of the market are approaching a tough milestone in growth.

The benchmark S & P 500 index fell below 3837.248 during the Friday session. This is more than 20% below the January 3 high on a daytime basis. However, the index closed above that level and did not confirm that it was in a bear market. It is often defined as a drop of at least 20% from the high closing price.

If history is a guide, it would mean that the bear market may have more pain awaiting for investors. According to Sam Stovall, CFRA’s chief investment strategist, the S & P 500 has fallen an average of 32.7% in 13 bear markets since 1946.

According to CFRA, it took an average of over a year for the index to bottom out in the bear market, and then another two years for it to return to its previous highs. Of the 13 bear markets since 1946, the return to the break-even point varied, taking a minimum of 3 months and a maximum of 69 months.

The S & P 500 surged about 114% from its March 2020 low, benefiting from the emergency policies implemented to stabilize the economy following the COVID-19 pandemic.

The decline reversed in early 2022 as the Federal Reserve grew much more hawkish and suggested tightening monetary policy with a faster clip than expected to combat rising inflation. With 75 basis points already raised this year, expectations for future rate hikes weigh heavily on equities and bonds.

Federal Reserve Chair Jerome Powell has vowed to raise interest rates as much as necessary to curb inflation, but he believes policymakers can lead the economy to a so-called soft landing.

Adding to the instability was the war in Ukraine, which caused further rises in oil and other commodity prices.

Some areas of the stock market are spared. Energy stocks have skyrocketed with oil prices this year, but defense groups such as utilities are holding up more than the wider markets.

On the contrary, the market share of technology and other high-growth companies has been hit hard. These stocks, which have hit highs in many of the bull markets over the last decade, are particularly sensitive to high yields, with more emphasis on cash flow in the future and diminishing when discounted at higher rates. It dulls the charm.

Some of the biggest of these companies, such as Tesla and Facebook’s owner Metaplatform, also have a lot of weight in the S & P 500 index.

Investors have considered various indicators to determine when the market will rise, such as the Cboe Volatility Index, also known as the Wall Street Fear Gauge. The index is up compared to its long-term median, but still below the levels reached by previous major sales.

(Report by Lewis Krauskopf; edited by Kirsten Donovan and Ira Iosebashvili)