It’s been a tough year for stocks – and it’s only getting worse.
On Friday, the S&P 500 index entered an intraday bear market for the first time since 2020 and also signaled a market close to the January record.
A bear market arises when a stock index falls 20 percent or more from the most recent high.
For the S&P 500 Index – which includes large companies such as Amazon, Apple, Bank of America and Walmart and is most often used as a proxy for the broader stock market – the last high occurred on January 3rd. The sale has since been triggered in part by the Federal Reserve̵[ads1]7;s decision to raise the key interest rate, making it more expensive to borrow and thus limiting the overall financing environment.
Sales have only accelerated as inflation is at 40-year highs and the Federal Reserve is pursuing its monetary tightening measures.
Shares on Wednesday saw their worst one-day decline in several years, after retailer Target reported earnings and earnings that were worse than analysts’ expectations. Shares of other retail companies such as Walmart also fell.
“The strong sales in these companies (as well as other commodity / consumer companies this quarter) show that inflationary pressures are finally having an impact on earnings,” said Maneesh S. Deshpande, head of US equities strategy at Barclays. Thursday note.
The Dow Jones Industrial Average, which includes 30 prominent and mostly mature U.S. companies, is about 13 percent below its recent peak, so it has a little more room to run before entering a bear market.
But Nasdaq’s composite index, which is heavy on technology companies, is already in a bear market. It entered one in March, after peaking in November.
Overall, it is no longer clear whether companies will be able to maintain healthy sales margins, and thus profitability, in the short term, Deshpande said.
Analysts say that for the time being, long-term shareholders do not need to panic to sell, even though the declines continue.
“I always advise against timing the market because you have to be right twice,” said Sam Stovall, investment strategist at CFRA research group. “You have to be right when you come out – and usually people are right when they come out – but you rarely see people being right when they come in again.”
The last bear market, in 2020, lasted about a month. Before that, in 2009, the S&P 500 fell into a bear market that lasted for about two months. Other bear markets, including those started in 2007, 2000 and 1980, lasted for more than a year.
However, there are signs that this may last longer, which means that investors may have to think about how serious losses they can withstand.
“We have more likely disadvantages as this adjustment process continues to unfold,” said Scott Ladner, CIO of Horizon Investments’ finance group. “So if you need money over the next three months, maybe take your lumps and get out. But beyond that, we have a chance that the revenue will find a steady state.”