The broader S&P 500 fell 3.6%. This index is now more than 20% below the all-time high set in January, putting stocks in a dominant market. Fears of inflation and recession had eased somewhat in late May and shares had regained some ground. However, Friday’s miserable consumer price index report showed that US inflation was significantly higher than economists expected last month, which could hamper the Federal Reserve’s efforts to control inflation. After raising interest rates by half a point in May – an action the Fed had not taken since 2000 – President Jerome Powell pledged more until the central bank made sure inflation was under control. At that point, the Fed will resume its typical quarterly increases, he said. However, after the hotter-than-expected May inflation report, Wall Street is calling for tougher action by the Fed to keep prices in check. Jefferies joined Barclays on Monday, predicting that the Federal Reserve would raise interest rates by three-quarters of a percentage point, a move the Fed has not taken since 1994. “After holding their breath for almost a week in anticipation of the US CPI report for May, investors breathed a sigh of relief as inflation was higher than expected,” said Sam Stovall, CFRA’s chief investment strategist. customers on Monday morning. Stovall said the risk of higher increases was dragging markets down on Monday. Investors fear two outcomes, neither of which is good: Higher interest rates mean higher borrowing costs for businesses, which can weaken their profits. And the Fed’s overzealousness could inadvertently plunge the US economy into recession, especially if businesses start laying off workers and the hot housing market collapses. There is no indication that the labor and housing markets are in danger of collapsing, although both are cooling somewhat. In an interview with CNN’s Fareed Zakaria on Sunday, former Fed Chairman Ben Bernanke said the US recession remains possible. But Bernanke said he believed Powell and the Fed could achieve a so-called soft landing, the elusive effect on which the central bank can relax the economy to control inflation without slowing it down enough to enter a recession. . “Economists are very bad at predicting a recession, but I think the Fed has a decent chance – a reasonable chance – of achieving what Powell calls a ‘soft landing’, either without a recession or a very mild recession to reduce inflation.” . said Bernanke.
Bears and bulls
If the S&P 500 closes in bear market, the upward trend that started on March 23, 2020 will be over. However, due to the difficult way of measuring these things, the bear market will have started on January 3, when the S&P 500 reached the all-time high. That would mean the last uptrend lasted just over 21 months – the lowest recorded, according to Howard Silverblatt, senior analyst at S&P Dow Jones Indices. In the last century, bullish markets have averaged about 60 months. The shortest uptrend will have followed the shortest downtrend, the one that lasted just over a month – from February 19 to March 23, 2020. Bear markets have historically lasted an average of 19 months, according to Silverblatt. Shares fell briefly in bear market on May 20, although a rally late in the day saved the market from closing below this threshold for the first time since the early days of the pandemic. The heavy-duty Nasdaq has been in a bear market for some time now and is now 32% below the all-time high set in November 2021. The Dow is still quite far from the bear market. It has fallen 15% from the all-time high reached on the last day of 2021.
