Until recently, the stock market appeared to defy gravity, providing double-digit returns that brought financial security to many Americans even as everything around them collapsed.
The Stock Market Has Finally Come Back To Earth
Despite a late-session recovery, markets dropped on Thursday, extending one of the worst beginnings to a year in history, as increasing losses brought the benchmark S&P 500 index to a new low point for 2022, and investors continued to sell equities amid rising uncertainty.
Concerns about an economic slowdown driven by rising inflation have shaken investors, prompting the Federal Reserve to hike interest rates and tighten monetary policy in response, leading the Stocks to “relentless selling pressure” for the previous five weeks.
Apple was down nearly 5%, Tesla was down nearly 3%, Disney was up over 2%, and Facebook’s parent company, Meta, was down 1%.
The possibility of a hawkish Federal Reserve has dimmed Wall Street’s stock outlook, with some investors now anticipating a possible bear market in the benchmark S&P 500 index.
A bear market, defined as a 20% or greater drop from a peak, would signal the end of the pandemic-era rally, which drove stocks to all-time highs on the strength of unprecedented Fed stimulus.
Last week, the Federal Reserve announced a 50-basis-point rate hike and indicated that it will do so again at its next two meetings.
Investors are presently pricing in a total tightening of 209 basis points this year, putting the central bank on track for its most aggressive tightening path since 1994.
The Dow Jones Industrial Average sank 0.3 percent, or approximately 100 points, while the S&P 500 fell 0.1 percent and the tech-heavy Nasdaq Composite remained unchanged.
The benchmark S&P 500 index has dropped about 20% from its January highs and is now on the verge of entering the bear market territory, while the Nasdaq has already entered the bear market territory, down 30%.
Inflationary pressures, spurred by rising food costs and the conflict in Ukraine, have prompted the Federal Reserve to hike interest rates for the first time in years, sending stock values down.
As long as inflation remains high and a recession approaches, the stock prices may fall even further.
This crisis comes just months before the midterm elections, increasing Democrats’ difficulties in persuading voters that their party and President Joseph R. Biden are leading the economy in the proper direction.
In actuality, the stock market does not provide an accurate reflection of the real economy. Although unemployment is low and consumer spending is still strong, more than a month of punishing losses can harm the country’s financial attitude.
According to data from Hartford Funds, there have been 14 bear markets since 1945, with equities dropping an average of 36% over 289 days.
The amount of market loss this year is startling. The drastic shift in market leadership continues, with corporations that led the way out of the pandemic’s early stages suffering devastating losses.
Furthermore, bad investor sentiment is starting to impact Wall Street analysts, who are lowering price targets for S&P 500 companies at a rapid speed for over two years.