It’s been a tough year for stocks — and it’s only getting worse.
On Friday, the S&P 500 index entered an intraday bear market for the first time since 2020 and also signaled a market close below a January record.
A bear market occurs when a stock or stock index declines 20 percent or more from its most recent high.
For the S&P 500 index, which includes major companies like Amazon, Apple, Bank of America and Walmart, its most recent high was Jan. 3. The sell-off since then has been sparked in part by the Federal Reserve’s decision to raise its key interest rate, making it more expensive to borrow and thus restricting the overall financing environment.
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The sell-off has only accelerated as inflation hovers at 40-year highs and as the Federal Reserve pursues its monetary tightening measures.
Stocks on Wednesday saw their worst single-day decline in years, after the retailer Target reported revenues and profits that were worse than analysts’ expectations. Shares in other retail companies like Walmart dipped as well.
“The sharp sell-off in these companies (as well as other goods/consumer companies this quarter) shows that inflationary pressures are finally having an impact on earnings,” Maneesh S. Deshpande, head of U.S. equity strategy at Barclays, said in a Thursday note.
The Dow Jones Industrial Average, which includes 30 prominent and mostly mature U.S. companies, is about 13 percent below its most recent peak, so it has a bit more room to run before it enters a bear market.
But the Nasdaq composite index, which is heavy on technology companies, is already in a bear market. It entered one in March, after hitting a high in November.
Altogether, it is no longer clear whether companies will be able to maintain healthy sales margins, and thus profitability, in the near term, Deshpande said.
Analysts say that, for now, long-term stock holders don’t need to panic about selling, even if the declines continue.
“I always advise against timing the market because you have to be right twice,” said Sam Stovall, chief investment strategist at CFRA research group. “You have to be right when you get out — and usually people are correct on getting out — but you rarely see people be correct on when to get back in.”
The most recent bear market, in 2020, lasted about a month. Before that, in 2009, the S&P 500 fell into a bear market that lasted about two months.
However, there are signs this one could last longer, which means investors may have to think about how severe of a loss they can withstand.