The stock market is back on the edge of its first bear market since 2020

New York (AFP) – Wall Street has fallen to the edge of a bear market Friday after another drop in stocks sent the S&P 500 index briefly more than 20% below its peak set early this year.

The S&P 500, which is at the heart of most workers’ 401(k) accounts, fell as much as 2.3% the day before a furious return in the last hour of trading, yielding a slight gain of less than 0.1%. It finished 18.7% below the record high set on January 3. The turbulent trading capped a seventh consecutive losing week, the longest streak since the dotcom bubble was deflation in 2001.

high interest rateshigh inflationThe war in Ukraineslowdown in the Chinese economy All are punishing stocks and raising concerns about a possible recession in the United States. Adding to concerns is how the superhero who flew to save Wall Street in recent downturns, the Federal Reserve, appears less likely to help as it is stuck fighting the worst inflation in decades.

The S&P 500 finished the day 0.57 points higher at 3,901.36. The Dow Jones Industrial Average swung from an early loss of 617 points to close up 8.77, or less than 0.1%, at 3,1261.90. The Nasdaq Composite Index trimmed a significant loss, ending 33.88 points, or 0.3%, at 11,354.62 points.

With the S&P 500 not finishing its day below 20% of its record, the company behind the index says the bear market hasn’t officially started. Of course, the 20% limit is an arbitrary number.

Whether or not the S&P 500 closes in a bear market doesn’t matter much,” said Brian Jacobsen, chief investment analyst at Allspring Global Investments. “A lot of pain has already been experienced.”

Many big tech stocks, seen as some of the most vulnerable to higher interest rates, have already fallen more than 20% this year. That includes a 37.2% drop for Tesla and a 69.1% drop for Netflix.

It’s a sharp turnaround from the strong race Wall Street enjoyed after breaking out of its last bear market in early 2020, at the start of the pandemic. With it, the S&P 500 more than doubled, as a new generation of investors seemingly vacillated met the rallying cry of “buy the plunge!”

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“I think a lot of investors have been confused and wondering why the market has rebounded despite the pandemic,” Jacobsen said. “Now that the pandemic is mostly over, I think a lot of investors are shoving themselves not to come out with signs that the economy may have been slowing and the Federal Reserve has been making policy pivotal.”

With inflation at its highest level in four decades, the Fed has moved aggressively away from keeping interest rates very low in order to support markets and the economy. Instead, it raises interest rates and takes other steps in hopes of slowing the economy enough to curb inflation. The worry is if it goes too far or too fast.

“The market volatility has certainly been driven by investor fears that the Fed will tighten policy too much and put the US into a recession,” said Michael Aaron, chief investment analyst at State Street Global Advisors.

Bond yields fell as recession fears pushed investors to Treasurys and other things seen as safer. The yield on the 10-year Treasury, which helps determine mortgage rates, fell to 2.78% from 2.85% late Thursday. Economists at Goldman Sachs recently put the probability of a US recession in the next two years at 35%.

Inflation has been painfully high for months. But market fears escalated after the Russian invasion of Ukraine, which sent prices up at grocery stores and at petrol pumps, as the region is a major source of energy and grain. Meanwhile, the world’s second-largest economy took a hit as Chinese officials closed major cities in the hope of halting coronavirus cases. This is all compounded by some disappointing data from the US economy, although the labor market remains hot.

Increased pressure on stocks were signs of slowing corporate earnings and may finally be affected by inflation. This means that the pain has expanded beyond high-growth technology stocks to include more Wall Street.

Retail giants target Walmart Both had warnings this week about reducing inflation in finances. Retailer Ross Stores sank 22.5% on Friday after cutting its earnings forecast, citing rising inflation as a factor.

“The latest retail earnings finally indicated that US consumers and businesses are being negatively impacted by inflation,” Aaron said.

Although its source varies, the gloom on Wall Street reflects a sense of discontent across the country. reconnaissance From the Associated Press-NORC Center for Public Research released Friday found that about 2 in 10 adults say the US is heading in the right direction or the economy is doing well, both down from about 3 in 10 a month ago.

Much of the Wall Street bull market since early 2020 has been the result of buying by casual investors, many of whom started trading for the first time during the pandemic. Along with several cryptocurrencies, they have helped propel beloved stocks like Tesla to the top. They even made GameStop suddenly soar so high that it sent professional Wall Street panic.

But these traders, called “retail investors” by Wall Street to distinguish them from large institutional investors, are holding back as stocks tumble. Retail investors have switched from net buyers of stocks to net sellers over the past six months, according to a recent report from Goldman Sachs.

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