![]() Big technology stocks and other winners of the pandemic were seen as the most expensive, and those stocks have been the most punished as inflation rates have risen. Higher rates also make investors less willing to pay elevated prices for stocks, which are riskier than bonds, when bonds are suddenly paying more in interest thanks to the Fed.Ĭritics said the overall stock market came into the year looking pricey based on history. ![]() If customers are paying more to borrow money, they can't buy as much stuff, so less revenue flows to a company's bottom line. Currently, the chances of a recession are about 30%, according to research from Moody's Analytics and a Wall Street Journal survey of economists.īut even if a recession is avoided, the Fed's interest rate hikes will still put downward pressure on stocks. So we just need to avoid a recession?Įconomists say the odds of a recession are increasing due to high inflation, which could crimp consumer spending, and the Fed's rate hikes. And worries about China's economy, the world's second largest, have added to the gloom. Russia's war in Ukraine has also put upward pressure on inflation by pushing up commodities prices. Last month, the Fed signaled additional rate increases of double the usual amount are likely in upcoming months, part of its plan to make borrowing more expensive and put the brakes on spending by consumers and businesses.īut the risk is the Fed could cause a recession if it raises rates too high or too quickly. The Federal Reserve has made an aggressive pivot away from propping up financial markets and the economy with record-low rates and is focused on fighting inflation, which hit a new 40-year record in May. Low rates act like steroids for stocks and other investments, and Wall Street is now going through withdrawal. 1 is interest rates, which are rising quickly as a result of the high inflation battering the economy. The index fell 34% in that one-month period, as investors reacted to lockdown orders that closed businesses and kept consumers at home. The most recent bear market for the S&P 500 ran from Februthrough March 23, 2020. The Dow Jones Industrial Average is more than 16% below its most recent peak. The Nasdaq is already in a bear market, down 31% from its peak of 16,057.44 on November 19. Overall, the index is down about 19% from its most recent high in January.įor many investors, the bear market will become official if the S&P 500, Wall Street's main barometer of health, finishes the day at least 20% down from its peak. But stocks recovered by the end of trading at 4 p.m., with the S&P 500 closing up 1 point for the day. ![]() The S&P 500 index was down 1.9% in Friday afternoon trading, putting it 20.3% below its high set on January 3. In contrast, Wall Street's nickname for a surging stock market is a bull market, because bulls charge, Stovall said. Why use a bear to represent a market slump? Bears hibernate, so bears represent a market that's retreating, said Sam Stovall, chief investment strategist at CFRA. A bear market is a term used by Wall Street when an index like the S&P 500, the Dow Jones Industrial Average, or even an individual stock, has fallen 20% or more from a recent high for a sustained period of time. ![]()
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