Bear market beckons as U.S. stocks’ 2022 descent deepens By Reuters

By Lewis Krauskopf

NEW YORK (Reuters) – The inventory market’s brutal yr neared a grim milestone because the S&P 500’s slide on Monday threatened to depart it in a bear marketplace for the primary time since March 2020, fueled by worries over sky excessive inflation, a hawkish Federal Reserve and future financial progress.

The benchmark fell under 3837.248 throughout Monday’s session, a decline that on an intraday foundation put it greater than 20% under its Jan. 3 file closing excessive. If the index maintains such a decline via the market’s shut, the 20% drop would affirm a generally used definition of a bear market.

If historical past is any information, a bear market would imply extra ache may very well be in retailer for buyers. The S&P 500 has fallen by a mean of 32.7% in 13 bear markets since 1946, together with an almost 57% drop in the course of the 2007-2009 bear market in the course of the monetary disaster, in line with Sam Stovall, chief funding strategist at CFRA.

It has taken slightly over a yr on common for the index to achieve its backside throughout bear markets, after which roughly one other two years to return to its prior excessive, in line with CFRA. Of the 13 bear markets since 1946, the return to breakeven ranges has different, taking as little as three months to so long as 69 months.

Graphic: S&P 500 bear markets, since 1946 – https://graphics.reuters.com/USA-STOCKS/BEAR/zjvqkmznwvx/chart.png

The S&P 500 surged some 114% from its March 2020 low as shares benefited from emergency insurance policies put in place to assist stabilize the financial system within the wake of the COVID-19 pandemic.

These positive factors went into reverse at the beginning of 2022 because the Fed grew much more hawkish and signaled it might tighten financial coverage at a faster-than-expected clip to struggle surging inflation. It has already raised charges by 75 foundation factors this yr and expectations of extra hikes forward, together with at this week’s Fed assembly, have weighed on shares and bonds.

Fed Chairman Jerome Powell has vowed to lift charges as excessive as wanted to kill inflation but additionally believes policymakers can information the financial system to a so-called gentle touchdown. Including to the volatility this yr has been the struggle in Ukraine, which has precipitated an additional spike in oil and different commodity costs.

After the S&P 500 practically confirmed a bear market final month, the market rallied again, amid some hopes the Fed may sluggish its rate-hike tempo later this yr.

However Wall Avenue final week posted its largest weekly decline since January, with the newest blow to shares approaching Friday, when knowledge confirmed U.S. client costs accelerated in Might as gasoline costs hit a file excessive and the price of meals soared, resulting in the most important annual improve in practically 40-1/2 years.

Graphic: S&P 500 timeline – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjoxzdbpr/Pastedpercent20imagepercent201655126727434.png

A couple of areas of the inventory market have been spared. Vitality shares have soared this yr, together with oil costs, whereas defensive teams resembling utilities have held up higher than broader markets.

Graphic: S&P 500 sectors since all-time excessive – https://graphics.reuters.com/USA-STOCKS/BEAR/znpnemwbdvl/chart.png

On the flip facet, shares of know-how and different high-growth corporations have been hit arduous. These shares — excessive fliers throughout a lot of the bull market over the previous decade — are significantly delicate to greater yields, which uninteresting the attract of corporations whose money flows are weighted extra sooner or later and diminished when discounted at greater charges.

Among the largest of those corporations, resembling Tesla (NASDAQ:) and Fb (NASDAQ:) proprietor Meta Platforms, are additionally closely weighted within the S&P 500 index.

Graphic: Casualties in 2022 inventory market – https://graphics.reuters.com/USA-STOCKS/BEAR/egpbkwajjvq/chart.png

Buyers have checked out numerous metrics to find out when markets will flip greater, together with the Cboe Volatility Index, also referred to as Wall Avenue’s concern gauge. Whereas the index is elevated in comparison with its long-term median, it’s nonetheless under ranges reached in earlier main sell-offs.

Graphic: and bear markets – https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrnobevm/Pastedpercent20imagepercent201655125610135.png