Wednesday’s stock market rout was one for the record books.
Investors gave the Dow Industrial Average an 1,165-point haircut, trimming 3.6% off the blue-chip index on the day as stagflation fears grow on both sides of the Atlantic. And yet it was the best performing of the three major U.S. exchanges.
In a broad sell-off, the S&P 500 fell 4% yesterday, putting the benchmark within striking distance of a dreaded 20% drop for the year (it’s currently at -18.2% YTD).
At 5 a.m. ET, S&P 500 futures were trading nearly 1.5% lower. The futures markets have been under pressure all morning, making it seem like a question of when, not if, the much-watched index will go full bear.
Adding to the risk-off mood is the steady parade of earnings duds and growth downgrades. Target and Walmart stunned the markets in recent days with underwhelming corporate results and downbeat full-year forecasts, adding to the fears that inflation will force the mighty American consumer to hold back on purchases, sinking growth.
Yesterday, Wells Fargo economists chimed in to say its new base-case is for a recession in the United States. Meanwhile, JPMorgan economists cuts their U.S. growth forecasts for the rest of this year and next, joining Goldman Sachs in that regard. And in BofA Securities’ most recent global fund manager survey, fund managers say they now rank the one-two-three punch of hawkish central banks, the prospect of a global recession and out-of-control inflation as the biggest tail risks for the global economy and markets. Meanwhile, concerns about COVID-19 and the war in Ukraine are in decline, the same survey shows.
Even the bullish outlooks don’t sound all that rousing.
“We still believe the economy will avoid a recession in 2022—due to the strength of consumer and corporate balance sheets,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, wrote in an investor note Wednesday evening. “But the risks of a recession in 2023 or 2024 are rising rapidly because the Fed is tightening financial conditions and rising prices are going to eventually reduce demand for goods and services.”
May-hem for stocks and crypto
The markets caught this message long ago.
After a lousy April for stocks and crypto currencies, the global markets continue their downward plunge. So far in May, the tech-heavy Nasdaq is down 7.4%, and down nearly 28% on the year. Meanwhile, the safe-haven dollar and crude continue to climb.
It's no wonder veteran markets observers reached for superlatives to describe the recent bloodbath.
How long do bear markets last?
The last two bear markets—in 2018 and 2020—were short-lived affairs. Don't let that fool you.
Going back to World War 2, the media duration for a bear market is 11.4 months, according to LPL Financial, with an average drop of nearly 30%.
But bear markets that occur during a recession are felt more acutely. These swoons last, on average, nearly 15 months with markets falling nearly 35% over that period, LPL Financial has calculated.
If you're looking for good news, there's this detail: The data shows that one full year after the S&P 500 hits its nadir, the benchmark "has gained 32.0% on average, something most investors would likely take right about now," says LPL Financial Chief Market Strategist Ryan Detrick.
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