Three weeks ago, Wall Street barely survived the bear market, stocks rising at the last minute on a sharp decline; that cut the S&P 500 by 20 percent from a record high in January. Over the next few weeks, he gave a glimmer of hope that the worst losses could pass.
That spark is gone.
On Monday, the S&P fell 3.9 percent, closing the day by nearly 22 percent below its January 3 highs; and is tight in the bear market – a rare and sad mark of growing investors’ concerns about the economy.
Friday’s crucial report showed that inflation in the United States is growing rapidly; and is affecting all sectors of the economy. Earlier last week, the World Bank issued a stern warning that global growth could be halted; especially as the Ukrainian war continues.
Together, the data diminishes the hope that the Federal Reserve, as it raises interest rates, will be able to keep price gains under control without harming the American economy and sending ripples around the world.
Monday’s trade ended with reports that the Fed is likely to negotiate a rise in interest rates since 1994 when policymakers met this week.
“The Fed needs to raise policy prices vigorously if it hopes to lower inflation,” said Seema Shah, a chief strategic officer at Principal Global Investors. “If it has to be further strengthened, then the chances of a recession are high.”
Big stocks declining like this – the seventh bear market just 50 years ago – are often accompanied by tectonic changes in the economic outlook and hitting people’s retirement accounts. While one does not cause the other, the recession has followed the bear markets historically. The stock market crashed this way at the beginning of the coronavirus epidemic, and before that, it was during the 2007-8 global financial crisis, which toppled some of the world’s largest banks.
Last Bear Market
The bear market in 2020, however, lasted only six months. Stock analysts are worried that the decline will last longer.
Concerns about the US economy have intensified in the stock markets in Australia, Japan and China, all of which have opened up below. In Australia, the main stock index fell 5 percent on Tuesday morning, falling to the lowest level in two years. Japan’s Nikkei stock index fell 1.6 percent, while China’s Shanghai Composite Index fell nearly 1 percent in initial trade.
Shares are declining now because companies and consumers are facing rising costs almost everywhere they turn and investors fear the Fed will shut down the economy as it tries to control inflation. The central bank has already raised interest rates twice this year, with Wall Street fighting for interest – which was close to zero in March – to rise to 3 percent in September. The last major financial crisis was during the Great Depression.
Strengthening from higher policy levels in the economy to make loans of all kinds – from debt to business debt – more expensive. That reduces the housing market, keeps consumers from using it and prevents the growth of companies.
But interest rates are a dull tool, and their impact on the economy is being delayed, making it difficult for the Fed to know if it has gone too far before it is too late.
“By the time you start catching it and realizing you have done too much, you will be deep in the manager,” said Dan Genter, chief executive officer of Genter Capital Management, an investment advisory firm. “It will take nine to 12 months before you see all the results, and it takes a long time to get out of it.”
Lending money will cost
Borrowing costs are rising as $ 5-a-gallon fuel and higher food costs, rental housing; and housing prices are all starting to damage homes, “he said. Genter. That, in turn, undermines consumer spending, which has long been a major driver of the U.S. economy.
“What I’m afraid is that the Fed will actually become very strong; could put us in a terrible recession,” he said.
Monday’s trading – the worst daily decline of the month – has hit many corners of the financial markets. Every major U.S. stock industry keeps it low, as do benchmark indexes in Europe and Asia. Oil prices and government bonds are declining equally. And Bitcoin dropped below $ 24,000, 18 months low. The cryptocurrency has lost almost half of its value this year.
On Wednesday, the Fed will release its latest economic speculation, which investors may analyze closely. They may be convinced if the central bank is devising a way to raise; the average interest rate higher than expected.
But in order for investors to stop worrying, they will need to see inflation in the coming months; says Lauren Goodwin; an economist and portfolio strategist at New York Life Investments.
Another unanswered question for investors is the impact of another change in Fed policy. After purchasing government bonds to help keep the money flowing into the financial system; an emergency measure that began at the beginning of the epidemic, the central bank is reversing the course.
“This is an amazing card for investors,” Ms. Goodwin said.
The second phase of the market downturn is likely to come, Ms. Shah said. Shares may fall steadily as evidence of an economic crisis stems from corporate earnings; consumer spending and other information showing that the worst economic expectations are being met. A new wave of sales may not happen until the end of this year.
All the talk about the economic downturn and the bear markets can also add – at the very least – add economic pressure; in part, because people see their investment; retirement or college savings accounts dwindle and begin to decline in spending.
“The result of the behavior is that people are going to start slowing down spending; be more careful, start saving more,”; said Beth Ann Bovino, a senior American economist at S&P Global. “That is not a good thing for the economy. It slows down growth. ” Also, many more blogs are there on investments here.
Source: Federal Reserve System (FRS) Definition.