The S&P 500 on Monday dropped into its second bear market of the pandemic, crossing a symbolic and worrisome threshold as stocks plunge following a meteoric rise over the last two years.
Bear markets — when stocks decline at least 20 percent from their recent peaks — are relatively rare, and they frequently precede a recession. This sell-off, dragging the S&P down from a peak on Jan. 3 (which reflects the new bear market’s starting point), comes as concerns mount over high inflation, the war in Ukraine, Covid and the Federal Reserve’s attempts to rein in the economy.
just above a bear market in May before recovering, but stocks fell sharply again on Friday following the latest release of government data showing that inflation had accelerated again.
The worry among stock traders is that the Fed could be forced to constrict the economy’s growth in order to bring inflation under control, leading to a recession. While recessions have often followed bear markets, one does not necessarily cause the other.
The State of the Stock Market
The stock market’s decline this year has been painful. And it remains difficult to predict what is in store for the future.
“It is not that consumer demand is weak yet — spending has held up,” said Paul Ashworth, who is the chief North American economist at Capital Economics. “The fear is that the Fed is going to go very hard, and that leaves us in a recession at some point.”
800,000 of the 22 million jobs lost at the height of coronavirus-related lockdowns. While rising mortgage rates have begun to dampen activity, housing — generally one of the biggest sources of wealth for Americans — remains strong.