Home Business Wall Street takes a break, but bear market looms

Wall Street takes a break, but bear market looms

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Wall Street was poised for some relief on Monday, with major U.S. indexes advancing higher in morning trade after last week’s sky-high volatility. But the global and economic currents that have rattled markets for weeks show no signs of abating.

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

The S&P 500 remains on the precipice of a bear market – defined as a 20% drop from a recent high – after plunging to that ground on Friday before squeaking out a last-minute rally. The tech-heavy Nasdaq is already down more than 27% for the year, and the Dow is down nearly 14%.

Markets hate uncertainty, but 2022 trading has been mired in it as investors try to analyze a complex and competing array of forces weighing on the global economy, from decades-high inflation to evolving consequences of the pandemic and the war in Ukraine.

US could be heading for recession next year, other experts say

Investors appear to lack confidence in the Federal Reserve’s ability to rein in runaway inflation without tipping the economy — which is already slowing amid a wide range of headwinds — into a recession. Soaring costs are cutting into corporate profits and forcing households to spend more at the gas pump and in grocery stores. Last week, Treasury Secretary Janet L. Yellen warned that “rising food and energy prices are having stagflationary effects…bringing down production and spending and raising inflation. around the world”.

The Fed’s interest rate hike earlier this month — the second of seven forecasts for 2022 — could make borrowing more expensive for businesses and households. This is supposed to ease inflationary pressures. But Fed officials are trying to raise interest rates at such a pace that it doesn’t completely stifle economic growth, a difficult balance to strike. If the economy cools too quickly, it could slip into a recession, generally defined as two consecutive quarters of decline.

Russ Mould, chief investment officer at AJ Bell, said he sees the ‘classic’ phases of a bear market forming as investors face the onslaught of challenges that growth stocks have enjoyed since the short but significant downturn they suffered when the coronavirus first brought the global economy to a halt. Pandemic favorites saw their stocks fall in 2022, including Microsoft (down 25%), Amazon (36%), Peloton (58%), Netflix (68%) and Zoom (53%).

Bull markets “crack first at the periphery,” Mold noted in a comment on Monday. “Issues then filter down to core assets as confidence wanes.”

These cracks have been forming for some time now, their influence is impossible to ignore in more speculative areas of the market such as cryptocurrency, Mold noted, pointing to Bitcoin’s staggering fall. The digital coin is trading below $30,000, down 36% year-to-date and less than halfway from its November peak of nearly $67,000.

SPACs, the so-called “blank cheque” companies that have become immensely popular in recent years – one was used to launch former President Donald Trump’s social media platform – are “malfunctioning”, a noted Mr. Mold, and new transactions are “cooling off”. WELCOME.”

Last week, signs of genuine panic surfaced in response to disappointing earnings reports from Walmart, the nation’s largest grocer and the world’s largest retailer, and Target, another retail titan. both companies suffering their worst trading days in decades after raising concerns about how rising costs were eating away at their businesses.

Another influx of corporate earnings will arrive this week, including reports from Costco, Best Buy, Nordstrom, Macy’s, Dollar General and Zoom. Meanwhile, the World Economic Forum is holding its annual gathering in Davos amid an impending global slowdown.

Bear markets occur in a relatively regular cycle, and there have been 14 since 1945, lasting an average of 9.5 months. This is significantly shorter than bull markets, which last an average of 2.7 years.

If bear markets coincide with a recession, history has shown, they deepen and lengthen. If they don’t, the result brightens, with losses diminishing and gains coming back sooner.

In a sense, the market is overdue for a pullback. The last bear market ended in March 2020, at the start of the pandemic, and lasted only 33 days. And there hasn’t been a sustained bear market since 2009, when the global financial crisis ended.

Of the many threats to emphatic growth stocks since the March 2020 downturn, inflation casts the coldest shadow. The Fed hasn’t ruled out acting more aggressively if inflation doesn’t slow significantly, and investors are worried about how that could weigh on growth.

Even as Gas Prices Shake the Economy, Americans Can’t Stay Off the Road

Gas prices remained at a record low on Monday according to data tracked by AAA, with the national average hitting $4.59 a gallon. Last week, for the first time, the average price exceeded $4 in all US states.

For those worried about the volatility that might still be in store, the story has some comfort according to Chris Larkin, managing director of investment strategy at Morgan Stanley’s E-Trade. In most bear markets since 1957, the market was already closer, in time, to its eventual bottom than its pre-bearish high, Larkin noted in a comment Monday.

“In other words, when a bear market ‘started,’ there may have been more downside to come, but more often than not the worst was already in the rearview mirror,” Larkin said.

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