Once again Wall Street has come back into the claws of the bear markets because investors feel anxious over inflation and higher interest rates.
It is also a clear signal from FED that it will raise interest rates aggressively to overcome inflation.
Investors are forced to reconsider their decision about what they are going to pay for different stocks due to the Russia-Ukraine war and slowdown in China’s economy. Now large swings in the markets can be seen often and Monday was an example of that.
Experienced traders witnessed the last bear markets two years ago but the new generation who started trading during the COVID-19 pandemic has got really puzzled.
We can also thank FED for the decisions regarding the increase in interest rates because it brought a large sell-off in the markets and the famous saying “BUY ON DIP” becomes applicable. But on the other side people have been stuck and can feel the pain of selling over the past four days.
Why do we use the bear word for a downward market?
Sam Stovall-Chief Investment Strategist at CFRA answered this question by saying bear sleeps. On the other hand, bull charges and Wall Street always remain famous for a bull market.
The S&P 500 is the barometer of Wall Street which went 3.9% down on Monday to 3,749. If we calculate it is about 22% down from Jan 3’s high. The Nasdaq index is also in a bear market and it is down by almost 32.7% from its NOV 19’s high. The Dow Jones is also down by almost 17% from its high.
If we remember the most recent bear markets of the S&P 500 was seen from February 19, 2020, to March 23, 2020. The index declined by almost 34% in that period in the shortest period.
Why Investors are worried?
Rising interest rates always hit the markets but inflation can be controlled through increasing interest rates. Markets always welcome low-interest rates and act like a real bull.
It appears that the financial reserves are up with an aggressive pivot, aiming to record lower rates and help fight inflation. The decision to startup by raising the key short-term interest rate from near to zero, the Central bank strategy to encourage investors to invest in riskier assets like stocks and cryptocurrencies for better returns.
In the previous month, Fed signaled an additional rate increase almost to double. In comparison to the previous year, Consumer prices show the highest level in the four decades by 8.6%. This gives rise to the risk of economic recession if the rates grow this quicker.
With the Russia-Ukraine war, there is pressure on the investors as the prices of commodities rise, i.e. the effect of growing inflation. China’s economy also appears to add to the gloom.
Can we avoid the recession?
There will be pressure on the stocks even when Fed pulls off the delicate task. As customers are paying more to borrow money, they will put a limit on their buying power. This ultimately affects the stocks.
As per the survey, stocks have declined almost 35% on average whereas a bear market coincides with the recession. This is in comparison to the 24% downfall to avoid economic recession.
What should investors do now?
If investors want to get their remaining money back by locking the losses then they should sell every stock from their portfolios. While there are many pieces of advice to keep all the stocks in your portfolio and wait for the better time to come because ups and downs are the parts of this market.
It is also witnessed that after every bear market there is always a bull run that converts your losses into profit.
If you want to invest right now then only put that amount that won’t be needed for many years to come. The S&P 500 always comes back from a bear markets and marks new highs with huge returns.
How does the bear market gets ended?
Investors across the globe are willing to get a 20% gain from both the low point and sustained gains over an average of six months. In March 2020, the stock rose by 20% in a period of 3 weeks.