Stocks bear-market


Annie Li, Contributing Editor

The S&P 500 briefly entered bear-market territory earlier this month after suffering from falling prices for the seventh week straight, making this the first potential bear market after the major crash in 2020 due to the COVID pandemic.  

The S&P 500 is an index that consists of 500 stocks from the largest U.S. companies and is one of the leading indicators of the U.S. economy.  Investors typically use the term “bear market” to describe a prolonged drop in investment prices, with a fall of 20% or more.  While the index didn’t remain in bear-market territory for too long and made a small recovery by the end of the day, many fear that high inflation and rising rates will push the country into a recession. 

According to CNBC, “A lot of the future depends on whether we have a recession between now and 2023.  If we don’t have a recession, the worst is probably behind us, so things would just get better from here.  However, if we have a recession, the average market drop would be 34% and there would be major setbacks to the market from here,” said Jimmy Chang, CIO of Rockefeller Investment Co.

Inflation rates have gone up and many retail companies such as Target and Walmart have reported worse than expected earnings for May due to weakened consumer spending.  Walmart’s CFO Brett Biggs told CNBC that customers were trading down to cheaper brands and choosing smaller sizes like half-gallons of milk and the store brand of lunch meat instead of a pricier brand-name one.  Aside from the surging inflation, the war in Ukraine, high gasoline prices, and new COVID lockdowns in China have only further contributed to the economic slowdown.  Inflation rates have persistently increased more than the Federal Reserve has initially expected. 

According to the New York Times, “What the companies are telling us is that they are starting to notice that their consumer is responding to inflation.  We were worried about this moment, and we were waiting for this moment, and now it’s here,” said Jay Sole, a retail analyst at UBS.

Looking back at the market’s history, two of the worst bear markets were the stock market crash of 1929 which led to the Great Depression, and the bear market from 2007 to 2009, which led to the Great Recession.  

The 1929 market crash was preceded by huge economic growth until October 24 which began the week of investors panic-selling.  The Dow Jones Industrial Average fell by 89%, making it the biggest bear market to ever occur in history, and prices did not return to their high until 25 years later in November of 1954.  

During the market crash in 2007 which lasted 1.3 years, the S&P 500 fell by 51.9%.  This caused the U.S. economy to fall into recession, which grew into a financial crisis by September 2008.  While both of these market crashes were followed by a recession, not all bear markets coincide with one.  Since 1928, out of the 25 bear markets that have occurred, fourteen have experienced following recessions while eleven haven’t. 

“The stock market crash of 1929 was an extremely devastating event in history which led way into the Great Depression marking it as the worst economic turn down in history. The major fall in stock prices which began the 10-year period of economic depression not only affected the U.S, but also worldwide,” said freshman Aryaman Sharma.

While there’s much uncertainty as to how the market will play out by the end of 2023, it’s hard to believe that this year’s substantial stock market declines are over.  Despite the extreme negatives looking over the market, some investors see the bear market as a great opportunity for long-term growth.  

Students who are interested in getting started with investing can begin with buying index funds such as the S&P 500 which will offer less-volatile returns compared to individual stocks. Having diversified funds is also advisable since it’s never safe to put all your eggs in one basket. For example, treasury bonds are a good investment for safety and guaranteed interest. 

Over the decades, many have seen how inherently unpredictable the stock market can be, so instead of assuming the market’s future, investors should embrace and plan for its subsequent uncertainty. 

According to NPR News, “We see a very narrow path forward to achieve a soft landing and continue to anticipate a mild recession around the end of 2023,” said Matthew Luzzetti, the chief U.S. economist at Deutsche Bank.