It’s been a tough year for stocks, and it’s only getting worse.
On Friday, the S&P 500 entered an intraday bear market for the first time since 2020 and also signaled a market close below a January record high.
A bear market occurs when a stock index drops 20% or more from its most recent high.
For the S&P 500 Index – which includes big companies like Amazon, Apple, Bank of America and Walmart and is most often used as a gauge of the broader stock market — the most recent high was on January 3. Since then, the sell-off has been triggered in part by the Federal Reserve’s decision to raise its key interest rate, which makes borrowing more expensive and thus constrains the overall funding environment.
The sell-off has only accelerated as inflation is at 40-year highs and the Federal Reserve continues to tighten monetary policy.
Shares suffered their worst single-day decline in years on Wednesday after retailer Target reported revenue and earnings that fell short of analysts’ expectations. Shares of other retail companies like Walmart also fell.
“The sharp sell-off of these companies (along with other goods/consumer companies this quarter) shows that inflationary pressures are finally having an impact on earnings,” said Maneesh S. Deshpande, head of US equity strategy at Barclays. , in a press release. Thursday note.
The Dow Jones Industrial Average, which includes 30 leading and mostly mature U.S. companies, is about 13% below its last peak, so it has a bit more leeway before entering a bear market. .
But the Nasdaq composite index, which is heavy on tech companies, is already in a bear market. It entered one in March, after peaking in November.
Overall, it’s no longer clear whether companies will be able to maintain healthy sales margins, and therefore profitability, in the near term, Deshpande said.
Analysts say that, for now, long-term stock holders need not panic to sell, even if the declines continue.
“I always advise against timing the market because you have to be right twice,” said Sam Stovall, chief investment strategist at research group CFRA. “You have to be right when you go out – and usually people are right when you go out – but you rarely see people being right when you come in.”
The most recent bear market, in 2020, lasted about a month. Before that, in 2009, the S&P 500 fell into a bear market that lasted about two months. Other bear markets, including those that started in 2007, 2000 and 1980, have lasted longer than a year.
However, there are signs that this one could last longer, meaning investors may need to think about how bad of a loss they can withstand.
“We have more downside risk as this adjustment process continues to unfold,” said Scott Ladner, CIO of financial group Horizon Investments. “So if you need cash in the next three months, maybe grab your bits and get out. But past that, we have a chance of revenue returning to steady state.”