U.S. stocks plunged into a bear market on Monday morning as Wall Street investors grew nervous over the prospect of even tougher treatment from the Fed to fight inflation.
The Dow Jones lost 825 points, or 2.7%, and the Nasdaq fell 4.3%.
The general S&P 500 index fell 3.6%. This index is now more than 20% lower than its all-time high reached in Januarywhich puts the stocks in a bearish market trend.
Inflation and downside fears eased somewhat at the end of May, and equities regained some ground. But Friday’s consumer price index report showed U.S. inflation was significantly higher than economists had forecast last month, which could make it harder for the Federal Reserve to control its efforts. inflation.
After raising rates by half a point in May – a step the Fed had not taken since 2000 – Chairman Jerome Powell promised to do the same until the central bank was satisfied that inflation is brought under control. At that point, the Fed would resume its usual quarter-point hikes, he said.
But after May’s higher-than-expected inflation report, Wall Street increasingly calls for tougher action from the Fed to keep prices in check. Jefferies joined Barclays on Monday in predicting the Federal Reserve would raise rates by three-quarters of a percentage point, an action the Fed has not taken since 1994.
Investors fear two consequences, which are not good : higher rates mean higher borrowing costs for companies, which can hurt their bottom line. And overzealous action by the Fed could unwittingly push the US economy into regression, especially if companies start laying off workers and the booming housing market crashes.
There are no signs that the labor and housing markets are in danger of collapsing, although both are slowing down somewhat.
Bears and bulls
If the S&P 500 closes in a bear market, the bull run that renewed on March 23, 2020 will have ended. But, because of the tricky way these things are measured, the bear market will have started on Jan. 3, when the S&P 500 hit its all-time high.
That means the last bull market lasted just over 21 months – the shortest on record, according to S&P Dow Jones Indices senior analyst Howard Silverblatt. During the last century, bull markets have lasted an average of around 60 months.
The shortest bull market will have followed the shortest bear market, which lasted just over a month – from February 19 to March 23, 2020. Historically, bear markets last an average of 19 months, according to Silverblatt.
Stocks momentarily fell into a bear market on May 20, although a late-day rally saved the market from closing below that threshold for the first time since the early days of the pandemic.
The tech-heavy Nasdaq has been in a bear market for some time and is now 32% below its all-time high reached in November 2021. The Dow Jones is still far from a bear market. It has fallen 15% from the all-time high reached on the last day of 2021.
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