The S&P 500 managed to climb 0.01% at Friday’s close, about 18% less than its January 3 high, after falling 2.3% earlier in the day.
In the three years prior to this near-bear market, the index rose 90%.
The index’s decline highlights an increasingly bleak economic outlook for investors, fueled by slowing economic and earnings growth, rising inflation and subsequent monetary tightening by the Federal Reserve.
These conditions will likely continue until there is enough economic data to prove inflation is slowing, said Liz Young, head of investment strategy at SoFi. “I don’t think we’re at the height of panic yet,” she said. “It may not be enough to cross bear territory.”
Young sees a slow burn ahead of him. “I think maybe we should stay [in a bear market] for a short time. I don’t know if we’ll bounce back very quickly.”
“For the majority of the bull market since the March 2020 low, investors have had reason to buy the lows; and given that this downturn feels more ‘natural’ and prolonged, there is an increased degree of fear and not knowing where to hide,” Charles Schwab analyst Kevin Gordon wrote in a note. “I don’t think this malaise will leave us anytime soon, especially given that monetary and fiscal policy is no longer behind investors’ backs.”
There’s a saying among market analysts that the Fed tends to tighten policy until something breaks, and many analysts believe this downturn will continue until the Fed ends its streak. ongoing interest rate hikes.
“With Federal Reserve policy still poised to pick up the pace of tightening, balance sheet shrinking entering the mix and inflation proving somewhat stubborn, investors are turning their eyes to the potential for a fear growth or even outright recession,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote in a note Monday.
Morgan Stanley predicts a 27% probability of a recession over the next 12 months, a probability that jumped just 5% in March.
Federal Reserve Chairman Jerome Powell does not foresee a market cataclysm once the bear market officially begins. “Volatility has increased a bit, which is having an effect on liquidity in some markets,” he said in an interview with The Wall Street Journal on Tuesday. “Nevertheless, the markets are orderly, they work.”
There have been 17 bear (or near-bear) markets in the S&P 500 since World War II with an average decline of nearly 30% and lasting about a year, according to analysis by LPL Research.
According to preliminary data, the S&P 500 gained 0.01% for the day on Friday and lost 3% for the week. The Nasdaq Composite lost 0.3% for the day and 3.8% for the week, posting its seventh consecutive week of losses. The Dow Jones Industrial Average closed flat but fell 2.9% for the week, marking its first 8-week losing streak since 1923.
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