Stocks tumble on recession fears as S&P 500 nears bear market

Shares opened lower on Thursday, compounding losses suffered the day before Rout in 1,100 points in the Dow index. Investors are fleeing stocks amid lingering fears that high inflation will dampen consumer spending and squeeze corporate profits.

The Dow Jones Industrial Average fell 221 points, or 0.7%, to 31,268 in early trading, while the S&P 500 fell 0.3%. The tech-heavy Nasdaq Composite Index fell 0.7%.

Wall Street is increasingly concerned about the potential for a downturn in the face of headwinds, including the highest inflation in 40 years and rising interest rates. Tighter monetary policy could create a bumpy landing – and even a recession — causing a slowdown in economic growth. Grim quarterly earnings reports from retailers such as Target and Walmart this week fueled investor concerns.

“It’s a gloomy morning as stocks fall across the globe,” Adam Crisafulli, president of investment advisory firm Vital Knowledge, said in a research note. “The Walmart/Target outbursts cast a hugely negative pallor on the tape, reversing the modest stability seen in Thursday-Tuesday markets.”

The slippage put the S&P 500 on the cusp of a “bear market,” which is when a stock index falls 20% or more from a recent high for an extended period.


MoneyWatch: Is the United States Heading for Another Recession?

05:22

With today’s drop, the S&P 500 is down 18.7% from its most recent high of 4,796 on January 3, while the Dow is 14.4% below its most recent Mountain peak. The Nasdaq had already entered bearish territory and is down 29% from its last high in November.

Bear markets: how long do they last?

Since World War II, bear markets have taken an average of 13 months to go from peak to trough and 27 months to break even. The S&P 500 index fell an average of 33% during the bear markets of this period. The biggest decline since 1945 occurred in the 2007-2009 bear market, when the S&P 500 fell 57%.

History shows that the faster an index enters a bear market, the lower it tends to be. Historically, stocks have taken 251 days (8.3 months) to fall into a bear market. When the S&P 500 fell 20% at a faster rate, the index recorded an average loss of 28%.

The longest bear market lasted 61 months and ended in March 1942, when the index fell 60%.

What drives the market down?

A series of disappointing earnings reports from major retailers sparked the most recent selloff, with Target losing a quarter of its value after posting quarterly results well below analysts’ forecasts. Inflation, particularly for shipping costs, weighed on its operating margin.

Target’s report came a day after Walmart said its profits were hit by rising costs. Investors interpreted the reports as evidence that inflation is weighing on consumers, who are reluctant to buy big-ticket items and switch from national brands to cheaper store brands.

Wall Street is also concerned about “the companies’ ability to pass on higher costs, something that has been questioned but found answered in the retailer’s earnings reports,” said Quincy Krosby, chief strategist. shares for LPL Financial, in a research note. .

Krosby added, “Of course, consumers continue to spend, but many of the major retailers are unable to pass on labor costs and higher prices caused by a still constrained supply chain.

— With Associated Press reporting.

Garland K. Long