Wall Street takes a breather, but bear market looms

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After last week’s dizzying volatility, major U.S. stock indexes were higher in early trade, with Wall Street expected to ease on Monday. But the global and economic undercurrents that have plagued markets for weeks show no signs of abating.

The Dow Jones Industrial Average rose more than 660 points, or 2.1%, in early trade as the blue-chip index tried to shrug off its longest weekly loss in nearly a century. The broader S&P 500 gained 1.7%, while the Nasdaq gained 1%.

The S&P 500, which remains on the brink of a bear market — defined as a 20% decline from its recent high — tumbled into that zone on Friday before rebounding at the last minute. The tech-heavy Nasdaq has fallen more than 27% this year, while the Dow Jones is down nearly 14%.

Markets loathe uncertainty, but 2022 deals have been mired in them as investors try to unravel a complex, competing array of factors affecting the global economy, from decades of high inflation to the evolving fallout from the pandemic and war in Ukraine .

More experts say U.S. could slip into recession next year

Investors appear to lack confidence that the Fed can tame soaring inflation without slowing the economy, which has slowed amid various headwinds economic recessionSoaring costs are cutting into business profits and forcing households to spend more at gas stations and grocery stores. Last week, Treasury Secretary Janet L. Yellen warned that “higher food and energy prices are having a stagflationary effect … suppressing output and spending, and driving inflation up globally.”

Fed’s rate hike Earlier this month – the second of seven forecasts for 2022 – could make borrowing more expensive for businesses and households. This should ease inflationary pressures. But Fed officials are trying to raise rates at a pace that won’t completely dampen economic growth, a balance that is difficult to achieve. If the economy cools too quickly, it could slip into a recession, usually defined as two consecutive quarters of declines.

AJ Bell investment director Russ Mould says he thinks a ‘classic’ phase of a bear market is taking shape As investors begin to grapple with the challenges facing growth stocks since their brief but severe downturn, coronavirus First brought the global economy to a standstill. Pandemic favorites fell in 2022, including Microsoft (down 25%), Amazon (36%), Peloton (58%), Netflix (68%) and Zoom (53%).

In his comments Monday, Molde noted that the bull market “breaks first on the periphery.” “As confidence wanes, the problems trickle down to core assets.”

Mold noted that these cracks have been forming for some time, and their impact in more speculative market segments like cryptocurrencies cannot be ignored, noting Bitcoin’s stunning decline. The digital coin, which is trading below $30,000, is down 36 percent year-to-date, less than half its November peak of $67,000.

Molde noted that SPACs, so-called “blank check” companies that have become very popular in recent years — one of the social media platforms used to launch former President Donald Trump — “have underperformed,” New deals are “getting cool” reception. “

Signs of real panic surfaced last week with disappointing earnings reports from Walmart, the largest U.S. grocer and the world’s largest retailer, and another retail giant, Target, after both companies expressed concerns about the way they were trading. Rising costs, suffering their worst trading day in decades, are eating into their business.

This week will see another influx of corporate earnings reports, including reports from Costco, Best Buy, Nordstrom, Macy’s, Dollar General and Zoom. Meanwhile, the World Economic Forum held its annual meeting in Davos amid a looming global economic slowdown.

The cycles of bear markets are relatively regular, and there have been 14 since 1945, with an average duration of 9.5 months. This is much shorter than the bull market, which lasts an average of 2.7 years.

If a bear market coincides with a recession, history shows that they deepen and prolong. If they don’t, the results will brighten, the losses will be mitigated, and the gains will recover faster.

In a sense, the market is overdue for a pullback. The last bear market ended early in the pandemic in March 2020 and lasted just 33 days. There has not been a sustained bear market since the end of the global financial crisis in 2009.

Of the many threats to strong growth stocks since the downturn in March 2020, inflation is casting the coldest shadow. The Fed has not ruled out more aggressive action if inflation does not cool sharply, which investors fear will weigh on growth.

Americans can’t stay off the road even as gasoline prices shake the economy

Gasoline prices remained at an all-time high Monday, with the national average hitting $4.59 a gallon, according to data tracked by AAA.Just last week, the average price topped $4 for the first time Every state in the US.

For those worried about how much volatility remains, history has some solace, said Chris Larkin, managing director of E-Trade investment strategy at Morgan Stanley. Larkin noted in comments Monday that in most bear markets since 1957, the market has moved closer to the eventual low than the pre-bear highs.

“In other words, when a bear market ‘starts’, there may be more downside, but typically the worst is already in the rearview mirror,” Larkin said.