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Wall Street is taking a breather, but the bear market is booming

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Wall Street was ready for some relief on Monday, with the major US indices moving higher in morning trading after last week’s dizzying volatility. But the global and economic undercurrents that have weakened the markets for several weeks show no signs of abating.

The Dow Jones industrial average jumped more than 660 points, or 2.1 percent, in morning trading, as the blue-chip index tries to shake off its longest weekly losing streak in nearly a century. The broader S&P 500 rose 1.7 percent, while the Nasdaq rose 1 percent.

The S&P 500 remains on the brink of a bear market – defined as a fall of 20 percent from a recent high – after diving into that terrain on Friday before squeaking out at the last-minute recovery. The technology-heavy Nasdaq is already down more than 27 percent for the year, and the Dow is almost 14 percent lower.

Markets detest uncertainty, but trade in 2022 has been stuck in it as investors try to analyze a complex, competitive array of forces weighing on the global economy, from decades of high inflation to the evolving consequences of the pandemic and war in Ukraine.

The US may go into recession next year, say several experts

Investors seem to lack confidence that the Federal Reserve can tame roaring inflation without tipping the economy – which is already slowing in the midst of a wide range of headwinds – into a recession. High costs cut corporate profits and force households to spend more on petrol pumps and grocery stores. Last week, Finance Minister Janet L. Yellen warned that “higher food and energy prices have stagflation effects… depress production and spending and increase inflation worldwide”.

The Fed’s rate hike earlier this month – the second of seven forecasts for 2022 – could make it more expensive to borrow for businesses and households. This will ease inflationary pressures. But Fed officials are trying to raise interest rates at such a pace that it does not completely stifle economic growth, a difficult balance to find. If the economy cools too quickly, it could fall into a recession, generally defined as two consecutive quarters of decline.

Russ Mold, chief investment officer at AJ Bell, said he says he sees the “classic” phases of a bear market forming as investors take on the challenge of challenges to growth stocks since the brief but significant downturn they suffered when the coronavirus first halted the global economy. Pandemic favorites have seen their shares fall in 2022, including Microsoft (down 25 percent), Amazon (36 percent), Peloton (58 percent), Netflix (68 percent) and Zoom (53 percent).

Beef markets “crack first in the periphery,” Mold noted in the comments section Monday. “Problems are then filtered through to core assets as confidence declines.”

These cracks have been forming for a while now, their influence is impossible to ignore in more speculative areas of the market such as cryptocurrency, Mold noted, pointing to Bitcoin’s amazing fall. The digital coin is trading below $ 30,000, down 36 percent so far this year and less than half the peak in November near $ 67,000.

SPACs, the so-called “blank-check” companies that became hugely popular in recent years – one was used to launch former President Donald Trump’s social media platform – “perform poorly,” Mold noted, and new transactions “become cool receptions. “

Last week, there were signs of real panic in response to disappointing revenue reports from Walmart, the country’s largest retailer and world retailer, and Target, another retail titan. Rising costs are eating away at their businesses.

Another influx of corporate revenue will roll in this week, including reports from Costco, Best Buy, Nordstrom, Macy’s, Dollar General and Zoom. Meanwhile, the World Economic Forum is holding its annual gathering in Davos amid a looming global downturn.

Bear markets take place on a relatively regular cycle, and there have been 14 since 1945, lasting an average of 9.5 months. It is significantly shorter than the beef markets, which last for an average of 2.7 years.

If bear markets coincide with a recession, history has shown, they become deeper and longer. If they do not, the result brightens, with losses being reduced and gains coming back sooner.

Somehow the market is delayed for a withdrawal. The last bear market ended in March 2020, early in the pandemic, and lasted only 33 days. And there has not been a sustained bear market since 2009, at the end of the global financial crisis.

Of the many threats posed by the emphatic growth rates since the downturn in March 2020, inflation casts the coldest shadow. The Fed has not ruled out going more aggressive if inflation does not decline significantly, and investors are worried about how it could weigh on growth.

Even when gas prices rattle the economy, Americans can not stay out of the way

Gas prices remained at a record high on Monday, according to data tracked by AAA, with the national average of $ 4.59 per gallon. Just last week, for the first time, the average price peaked at $ 4 in all US states.

For those concerned about how much volatility may still be waiting, the story has some consolation, according to Chris Larkin, CEO of investment strategy at Morgan Stanley’s E-Trade. In most bear markets since 1957, the market was already, in time, closer to the final lowest than before bears, Larkin noted in the commentary on Monday.

“In other words, when a bear market” started, “there may have been several disadvantages to come, but more often than not, the worst was already in the rearview mirror,” Larkin said.

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