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S&P 500 drops more than 20% from its record high as recession fears mount

S&P 500 drops into bear market territory as recession fears mount



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The designation comes on the heels of six straight weekly losses for the index and follows months of precipitous market drops. The S&P 500 has long been considered the most accurate measure of the nation's stock performance. In the three years prior to this bear market, the index grew by 90%.Its slide highlights investors' increasingly dark economic outlook, one fueled by slowing economic and earnings growth, growing inflation and the Federal Reserve's subsequent monetary tightening. Friday's drop also is a bad omen for the economy as a whole. Only one bear market in the last 50 years, the market crash of 1987, was not accompanied by a recession. Read More"For the majority of the bull market since the March 2020 low, investors have had reasons to buy the dips; and given this slowdown is looking more 'natural' and protracted, there is a heightened degree of fear and not knowing where to hide," wrote Charles Schwab analyst Kevin Gordon in a note. "I don't think that discomfort leaves us anytime soon, especially given the fact that monetary and fiscal policy are no longer at investors' backs."The stock market is practically begging to be punishedThere is a saying among market analysts that the Fed tends to tighten policy until something breaks, and many analysts believe that this downturn will continue on until the Fed finishes its current round of interest rate hikes. "With Federal Reserve policy still poised to accelerate the pace of tightening, with balance-sheet reduction entering the mix and inflation proving somewhat stubborn, investors are shifting their gaze toward potential for a growth scare if not an outright recession," wrote Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in a note Monday. Morgan Stanley predicts a 27% chance of recession in the next 12 months, a probability that jumped from just 5% in March. Federal Reserve chair Jerome Powell, meanwhile, doesn't foresee market cataclysm once the bear market officially begins. "Volatility has been up a little bit, that has some effect on liquidity in some markets," he said during a Wall Street Journal interview Tuesday. "Nonetheless, the markets are orderly, they are functioning." There have been 17 S&P 500 bear markets (or near bear markets) since World War II with an average drop of nearly 30% and a duration of about a year, according to an analysis by LPL Research. The S&P 500 joins the Nasdaq Composite, which has lost more than 27% this year, in bear territory. The Dow, meanwhile, has fallen 4,723 points, or nearly 13% this year.


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