Bear Market Confirmed As US Stocks’ 2022 Descend Deepens
The S&P 500 is headed for its first bear market since March 2020. Worries about inflation, hawkish Federal Reserve policy and future economic growth are pushing the US stock market down. A bear market is a decline that lasts for a year or more, but the S&P 500 has already fallen 22 per cent from its recent record high. It’s time to consider exit strategies.
Last month, the S&P 500 almost confirmed a bear market, but rallied in the hopes that the Fed would take a pause on its rate hikes. However, the market quickly reversed course and posted its largest weekly loss since January. The latest blow to stocks came with data showing that U.S. consumer prices surged last month and were the fastest increase in more than 40 years. Meanwhile, falling consumer confidence further fuels the fears.
As the decline in the US stock market continues, investors should consider the role of Obama administration policies and Fed policy. The market may have been pushed down by these policies, but the Federal Reserve is under pressure to bring down high inflation levels, which may require drastic measures. If this scenario unfolds, the market will plunge to all-time lows. A few years later, the market will resume its upward climb.
In the case of the US stock market, bear markets are often caused by changes in the federal funds rate, tax rates, or a drop in investor confidence. Once investors believe something is going to happen, they will take action and sell their stocks, hoping that they won’t have lost money. But bear markets are not always cyclical. They can last for months or even years.
While the S&P 500 is now well below the value during the Biden inauguration, the decline in US stock prices has been much deeper and longer than anyone had anticipated. The S&P 500 has lost most of its gains in 2021, but the S&P 500 still has some distance to fall. But with that time, it could be a great opportunity to buy stocks.
Shares of high-growth companies like Tesla and Meta Platforms have been hit hard. These stocks are particularly sensitive to higher yields. Higher yields dull the allure of companies with future cash flows. As interest rates rise, discount rates fall, and high yields fall, these companies are especially vulnerable. Some of these stocks are heavily weighted in the S&P 500 index, including Facebook’s parent company, Tesla.