WALL ST. BARELY AVOIDS BEAR MARKET
NEW YORK — Wall Street rumbled to the edge of a bear market Friday after another drop for stocks briefly sent the S&P 500 more than 20% below its peak set early this year.
The S&P 500 index, which sits at the heart of most workers’ 401(k) accounts, was down as much as 2.3% for the day before a furious comeback in the final hour of trading sent it to a tiny gain of less than 0.1%. It finished 18.7% below its record, set on Jan. 3. The tumultuous trading capped a seventh straight losing week, its longest such streak since the dot-com bubble was deflating in 2001.
Rising interest rates, high inflation, the war in Ukraine, and a slowdown in China’s economy are all punishing stocks and raising fears about a possible U.S. recession. Compounding worries is how the superhero that’s flown to Wall Street’s rescue in the most recent downturns, the Federal Reserve, looks less likely to help as it’s stuck battling the worst inflation in decades.
Because the S&P 500 did not finish the day more than 20% below its record, the company in charge of the index says a bear market has not officially begun. Of course, the 20% threshold is an arbitrary number.
“Whether or not the S&P 500 closes in a bear market does not matter too much,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “A lot of pain has already been experienced.”
Many big tech stocks, seen as some of the most vulnerable to rising interest rates, have already fallen much more than 20% this year. That includes a 37.2% tumble for Tesla and a 69.1% nosedive for Netflix.
It’s a sharp turnaround from the powerful run Wall Street enjoyed after emerging from its last bear market in early 2020, at the start of the pandemic. Through it, the S&P 500 more than doubled, as a new generation of investors met seemingly every wobble with the rallying cry to “Buy the dip!”
“I think plenty of investors were scratching their heads and wondering why the market was rallying despite the pandemic,” Jacobsen said. “Now that the pandemic has hopefully mostly passed, I think a lot of investors are kicking themselves for not having gotten out on signs that the economy was probably slowing and the Fed was making its policy pivot.”