California Observer

Global economy panics as stock prices continues to fall

Image Source: The Business Telegraph

The stock market in the United States has entered a bear market as investors on Wall Street become increasingly concerned about the possibility of further harsher Fed action to combat inflation.

The Dow Jones Industrial Average (INDU) dropped 876 points, or 2.8 percent, on Wednesday. The Nasdaq was down 4.7 percent, dropping more than 10% in the previous two trading sessions.

The S&P 500 index, on the other hand, dropped 3.9 percent. This index is currently more than 20% below its all-time high established in January, indicating that stocks are in the bear market.

Fears of a recession grew after the dismal Consumer Price Index report on Friday revealed that US inflation was substantially higher than economists had forecast last month. The Federal Reserve’s efforts to control inflation could be hampered as a result of this.

Following a half-point rate hike in May, which was the first since 2000, Fed Chair Jerome Powell promised more rate hikes until inflation was under control. He predicted that the Fed would then begin its regular quarter-point hikes.

However, following May’s higher-than-expected inflation report, Wall Street is increasingly asking on the Fed to take more aggressive steps to keep prices in check. On Monday, Jefferies joined Barclays in projecting that the Federal Reserve will raise interest rates by three-quarters of a percentage point, the first time the Fed has done so since 1994.

The prospect of higher hikes, according to Stovall, pulled markets lower on Monday.

Investors are concerned about two scenarios, none of which are favorable: Higher interest rates entail higher borrowing costs for firms, which can chip away at their profits. Furthermore, overly hawkish Fed activity could unintentionally send the US economy into a recession, particularly if businesses begin to lay off workers and the hot housing market begins to implode. However, the job and housing markets do not appear to be on the verge of collapsing, though both are cooling.

Former Fed Chair Ben Bernanke suggested a US recession is still possible in a Sunday interview with CNN’s Fareed Zakaria. Bernanke, on the other hand, expressed confidence in Powell and the Fed’s ability to achieve a so-called “soft landing,” in which the central bank can cool the economy enough to keep inflation in check without causing it to enter a recession.

On Monday, analysts appeared to abandon the “buy the dip” approach, indicating that markets are unlikely to recover swiftly.

Bears and Bulls: A Quick History

The bull run on March 23, 2020, ended as the S&P 500 concluded in a bear market. The bear market technically began on January 3, when the S&P 500 hit its all-time high due to the complicated way these things are tracked.

According to Howard Silverblatt, senior S&P Dow Jones indices senior index analyst, the latest bull market lasted a little over 21 months, making it the shortest on record. Bull markets have averaged 60 months in length over the last century.

From February 19 to March 23, 2020, the shortest bull market followed the shortest down market. According to Silverblatt, bear markets have an average lifespan of 19 months.

On May 20, stocks briefly entered a bear market, but a late-day recovery saved the market from falling below that level for the first time since the outbreak began.

The Nasdaq, which is heavily weighted in technology, has been in a bear market for quite some time and is now trading at more than 32% below its all-time high set in November 2021. The Dow Jones Industrial Average is still a long way from falling into a bear market. It was down roughly 16% from its all-time high on December 31, 2021.

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