Three weeks ago, Wall Street narrowly escaped a bear market, with stocks rebounding at the last minute from a brutal drop that had brought the S&P 500 down 20 percent from a record high in January. The next few weeks offered a glimmer of hope that the worst of the losses might be over.
That glimmer is now gone.
On Monday, the S&P fell 3.9 percent, closing the day nearly 22 percent below its Jan. 3 peak and firmly in a bear market — a rare and grim marker of investors’ growing concerns for the economy.
A crucial report on Friday showed inflation in the United States was accelerating and creeping into every corner of the economy. Earlier last week, the World Bank issued a dire warning that global growth may be choked, especially as the war in Ukraine drags on.
Together, the data undercut optimism that the Federal Reserve, as it raises interest rates, would be able to keep price gains under control without damaging the American economy and sending ripples throughout the globe.
Monday’s trading ended with reports that the Fed is likely to discuss making its biggest interest-rate increase since 1994 when policymakers meet this week.
“The Fed needs to hike policy rates more aggressively if it has any hope of bringing inflation down,” said Seema Shah, chief global strategist at Principal Global Investors. “If it’s going to have to tighten even more, then the chance of a recession is higher.”
Large stock declines like this one — just the seventh bear market in the last 50 years — usually accompany a tectonic shift in the outlook for the economy and batter people’s retirement accounts. While one does not cause the other, recessions have historically followed bear markets. The last time stocks fell this much was at the start of the coronavirus pandemic, and before that it was during the 2007-8 global financial crisis, which toppled some of the world’s largest banks.
The bear market in 2020, however, lasted only a relatively short six months. Stock analysts worry this decline will drag on longer.
Concerns about the U.S. economy weighed on stock markets in Australia, Japan and China, which all opened lower. In Australia, the key stock index fell 5 percent on Tuesday morning, plunging to its lowest levels in two years. Japan’s Nikkei stock index was down 1.6 percent, and China’s Shanghai Composite Index dropped about 1 percent in early trading.
Stocks are dropping now because companies and consumers face rising costs nearly everywhere they turn and investors fear that the Fed will clobber the economy as it tries to get inflation under control. The central bank has already raised interest rates twice this year, and Wall Street is bracing for interest rates — which were close to zero in March — to rise as high as 3 percent by September. The last time the federal funds rate was that high was during the Great Recession.
The tightening from higher policy rates filters through the economy to make borrowing of all kinds — from mortgages to business debt — more expensive. That slows down the housing market, keeps consumers from spending and discourages corporate expansion.
But interest rates are a blunt tool, and their impact on the economy is delayed, making it difficult for the Fed to know if it has gone too far before it is too late.
“By the time you start to catch it and realize you did too much, you’re going to be deep in a trough,” said Dan Genter, the chief executive of Genter Capital Management, an investment advisory firm. “It’s going to take nine to 12 months before you see the total effects, and it takes that long to get out of it.”
Borrowing costs are rising as $5-a-gallon gasoline and higher food costs, rents and home prices all begin to take a toll on households, Mr. Genter added. That in turn hurts consumer spending, which has long been a principal driver of the U.S. economy.
“My fear is that basically the Fed is really going to tighten too much and potentially throw us into a serious recession,” he said.
A History of Bear Markets
A History of Bear Markets
A bear market is when stocks fall 20 percent from a recent high. That happened Monday, when the S&P 500 fell 22 percent from Jan. 3.
Here are some past examples of bear markets →
A History of Bear Markets
The last bear market, in early 2020, was the shortest on record. The market recouped its losses in six months. By late March 2021, the bull market was celebrating its first birthday.
A History of Bear Markets
The most infamous bear market was during the Great Depression. Stocks fell 84 percent between Sept. 3, 1929 and June 1932, and they did not fully recover until January of 1945.
A History of Bear Markets
In the 1970s, a mix of high inflation, an oil crisis and the collapse of an economic agreement between nations led to another bad period for the stock market. Stocks fell about 50 percent from their peak in 1973.
A History of Bear Markets
A bear market in the 1960s preceded a recession. The economy had grown robustly for much of the decade, and the Fed’s inflation interventions helped cause two market declines.
A History of Bear Markets
In the early 2000s, after the dot-com bubble burst, a period of recession lasted eight months.
A History of Bear Markets
In 2008 and 2009, the financial crisis and bear market led to the deepest U.S. recession since the end of World War II. Then came a bailout that helped lead to a bull market that lasted over a decade.
Monday’s selling — the worst daily decline in a month — hit several corners of the financial markets. Every major U.S. stock sector ended lower, as did benchmark indexes in Europe and Asia. Oil prices and government bonds similarly dipped. And Bitcoin fell below $24,000, an 18-month low. The cryptocurrency has lost around half its value this year.
On Wednesday, the Fed is set to release its latest economic projections, which investors are likely to parse closely. They may be reassured if the central bank projects a path for interest rate increases that is more moderate than expected.
But for investors to really stop worrying, they’ll have to see inflation slowing in the coming months, said Lauren Goodwin, an economist and portfolio strategist at New York Life Investments.
Another unanswered question for investors is the impact of the Fed’s other policy change. After buying government bonds to help keep cash pumping through the financial system, an emergency measure that began early in the pandemic, the central bank is reversing course.
“This is a major wild card for investors,” Ms. Goodwin said.
A second stage to the market’s downturn is likely still to come, Ms. Shah said. Stocks could fall further as evidence of the economic trouble appears in corporate earnings, consumer spending and other data that show that the worst expectations for the economy are being realized. The new wave of selling may not happen until closer to the end of this year.
All the talk of recessions and bear markets could also — at the margins at least — add to the economic pressure, in part because people see their investment, retirement or college savings accounts shrink and start to pull back on spending.
“The behavioral effect is that people will start to slow down on spending, become much more cautious, start to save more,” said Beth Ann Bovino, the chief U.S. economist at S&P Global. “That’s not a good outcome for the economy. It slows growth.”
Reporting was contributed by Alexandra Stevenson, Jason Karaian, David Yaffe-Bellany, Clifford Krauss, Ben Casselman, Eshe Nelson, Melina Delkic and Isabella Simonetti.
June 13, 2022, 6:49 p.m. ET
June 13, 2022, 6:49 p.m. ET
Jason Karaian
What happens when stock markets become bears? My colleagues William P. Davis, Karl Russell and Stephen Gandel went all the way back to the Great Depression to find out. They crunch the numbers here.
June 13, 2022, 6:50 p.m. ET
June 13, 2022, 6:50 p.m. ET
Jason Karaian
The most recent bear market, before the current one, came just as the coronavirus began spreading globally and was the shortest on record. Stocks lost a third of their value in 33 days in early 2020 and recovered six months later.
June 13, 2022, 6:50 p.m. ET
June 13, 2022, 6:50 p.m. ET
Jason Karaian
This downturn might be longer lasting, in keeping with other bear markets, like the one after the 2008 financial crisis, when it took four years for stocks to regain the ground they lost.
June 13, 2022, 4:28 p.m. ET
June 13, 2022, 4:28 p.m. ET
Jim Tankersley
Karine Jean-Pierre, the White House press secretary, said the Biden administration was “watching closely” the turmoil in stocks, which have now given up all the gains they had made since President Biden took office. She blamed the declines in part on energy inflation caused by the war in Ukraine.
June 13, 2022, 4:22 p.m. ET
June 13, 2022, 4:22 p.m. ET
Isabella Simonetti
CME Group, a company that runs financial exchanges, was the biggest gainer in the S&P 500, up 1.6 percent. Its business thrives during times of market volatility, when investors are doing a lot of trading.
June 13, 2022, 4:24 p.m. ET
June 13, 2022, 4:24 p.m. ET
Isabella Simonetti
Coca-Cola, which ended the day flat, is another S&P 500 company whose shares escaped today’s sell-off. Analysts at Bank of America have attributed the stock’s resilience to Coke’s “relative insulation” from inflation in commodity prices because of its size and scale.
June 13, 2022, 4:03 p.m. ET
June 13, 2022, 4:03 p.m. ET
Mohammed Hadi
The S&P 500 ended Monday 3.9 percent lower, a drop that put it firmly into a bear market. The index is now down 21.8 percent from its Jan. 3 peak.
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The Federal Reserve is likely to discuss making its biggest interest rate increase since 1994 at its meeting this week, as a range of new data suggest that inflation is coming in hotter and proving more stubborn than policymakers had hoped.
Central bankers have been promising to be nimble as they fight inflation — a stance that will probably prompt them to at least discuss whether to raise interest rates by three-quarters of a percentage point on Wednesday, when officials are set to release both their decision and a fresh set of economic projections.
The Fed raised rates by half a percentage point in May and officials had suggested for weeks that a similar increase would be warranted at their meetings in June and July if data evolved as expected. But costs have not behaved as anticipated.
Instead, a report last week showed that inflation re-accelerated in May and is running at the fastest pace since 1981. Two separate measures of inflation expectations, one out last week and another released Monday, showed that consumers were beginning to anticipate notably faster price increases.
That is sure to increase the sense of unease at the Fed, which is trying to quash high inflation before it changes behavior and becomes a more permanent feature of the economic backdrop. Jerome H. Powell, the Fed chair, and other officials have repeatedly stressed the need to bring prices back down to a stable level to ensure a healthy economy. The string of worrying news has caused economists and investors alike to bet that the central bank will begin to raise interest rates at a more rapid clip to signal that it recognizes the problem and is making fighting inflation a priority.
“They’ve made it pretty clear that they want to prioritize price stability,” said Pooja Sriram, U.S. economist at Barclays. “If that is their plan, a more aggressive policy stance is what they need to be doing.”
Wall Street is bracing for interest rates to rise more than investors had anticipated just days ago, a reality that is sending stocks plummeting and causing other markets to bleed, including that for cryptocurrencies. Investors now expect rates to climb to a range of 2.75 to 3 percent as of the Fed’s September gathering from their current range of 0.75 to 1 percent.
For those expectations to materialize, central bankers would need to make two three-quarter-point moves over the course of its next three meetings. The Fed hasn’t made such a large increase since the early 1990s, and that 3 percent upper limit would be the highest the federal funds rate has been since the global financial crisis in 2008.
Such an abrupt policy path would have big implications for the economy. When the Fed lifts its policy interest rate, it filters through the economy to make borrowing of all kinds — including mortgage debt and business loans — more expensive. That slows down the housing market, keeps consumers from spending so much and cools off corporate expansions, weakening the labor market and broader economy. Slower demand can help price pressures to ease as fewer buyers compete for goods and services.
But interest rates are a blunt tool, making it difficult for the Fed to slow the economy with precision. Likewise, it is tough to predict how much conditions need to cool to bring inflation down convincingly. Supply issues tied to the pandemic could ease, allowing for a deceleration. But the war in Ukraine and China’s newly reimposed lockdowns meant to contain the coronavirus could keep prices elevated.
Households, economists and investors increasingly fear that the central bank will set off a recession, and anxiety about a coming downturn ricocheted through markets on Monday.
Stock indexes dropped sharply around the world throughout the day, and a bond-market signal that traders monitor closely now suggests that a downturn may be coming. The yield on the two-year Treasury note, a benchmark for borrowing costs, briefly rose above the 10-year yield on Monday. That so-called inverted yield curve, when it costs more to borrow for shorter periods than longer periods, typically does not happen in a healthy economy and is often taken as a sign of an impending recession.
While the economy is strong now, a slump that erases some of the recent solid progress in the job market would be bad news for President Biden, whose approval ratings have already swooned amid inflation’s rise.
Still, the White House has been sure to emphasize that the Fed is independent and that it will respect its ability to do what it deems necessary to bring inflation under control. Mr. Biden, in a recent opinion column, acknowledged that the nation was about to enter a transition period.
“The Federal Reserve has a primary responsibility to control inflation,” Mr. Biden wrote. He added that “past presidents have sought to influence its decisions inappropriately during periods of elevated inflation. I won’t do this.”
The Fed has a two-part mandate to achieve both stable prices and maximum employment. But officials have increasingly emphasized that a strong job market with runaway price increases is far from stable, and that getting inflation under control is a precondition for a truly healthy labor market.
Wrestling prices back under control has looked like an increasingly hairy challenge as wage growth remains strong, consumers continue to spend at a rapid clip and families begin to think that price increases might last. In the 1970s, economists believe, Americans began to expect faster inflation and demand bigger wage increases, setting off a chain reaction that fed on itself and pushed prices ever higher.
Paired with the possibility that uncontrollable shocks could continue to push prices up — for instance, the war in Ukraine is expected to continue elevating commodity costs — the latest developments have put the Fed in a tight position.
“We can’t allow a wage price spiral to happen, and we can’t allow inflation expectations to become unanchored,” Mr. Powell, the Fed chair, said during a news conference with reporters after the central bank’s May meeting. “It’s just something that we can’t allow to happen.”
The Fed has been in its pre-meeting blackout period, during which its officials do not give remarks on monetary policy, for several key data releases — including the latest hot inflation reading. That has left Wall Street guessing about whether its officials might contemplate speeding up the process.
But the central bank’s buzzwords for the year have been “nimble” and “humble,” terms Mr. Powell has emphasized repeatedly.
“This is when being nimble matters,” said Diane Swonk, chief economist at Grant Thornton. “A 75-basis-point move would underscore their commitment to avoid mistakes of the 1970s.”
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Investing at a chaotic time like this takes fortitude and planning. And if you can handle it, a falling stock market can be an opportunity for people with long horizons.
But I wouldn’t put any money in stocks until I was sure that I could pay my bills first. Once the critical expenses are accounted for, and as long as you can withstand some short-term losses, then broadly diversified, low-cost index funds are a good way to invest in the total stock market. That approach eliminates the risk of holding the wrong specific stocks at the wrong time.
History shows that the U.S. stock market has always recovered from declines in the past. If you put money in stocks, over 10 years you would have been down only 6 percent of the time. Over 20-year periods, the market has never been down. There could always be a first time, of course, and the experience of protracted losses can be excruciating. That’s why it is important to hold high-quality bonds or other safe investments, and to be sure that you have put aside money for emergencies.
Predicting when a bear market will end and the next bull market will start is a fruitless task, with one big exception: Intervention by the Federal Reserve would be a crucial sign of a change in fortune for the stock market. At the moment, the Fed is raising interest rates and taking other measures aimed at slowing the economy and bringing down inflation — and those moves are contributing to the fall in stock market prices.
If the Fed were to change its current approach and start flooding the economy with money again, as it did in 2008 and 2009, and again in March 2020, the odds of a new bull market would rise appreciably. For now, though, battling inflation is the central bank’s main priority, and it has signaled that large rate increases are on the horizon, one of which will probably be announced this week.
Audio produced by Jack D’Isidoro.
June 13, 2022, 3:00 p.m. ET
June 13, 2022, 3:00 p.m. ET
Isabella Simonetti
It’s no surprise that inflation is a big concern among investors, but here’s proof: Inflation ranked top among their concerns in a poll at a conference held by William Blair for investors in growth stocks. What’s more, investors expect “only a slight deceleration from current readings” of inflation by the end of the year.
June 13, 2022, 2:20 p.m. ET
June 13, 2022, 2:20 p.m. ET
Ben Casselman
Is the U.S. economy headed into a recession? The honest answer is that no one knows — economists and investors alike have a terrible record of forecasting downturns. But we can be reasonably confident that the United States is not currently in a recession, even though a large share of Americans (and maybe also the rapper Cardi B) think we are.
When y’all think they going to announce that we going into a recession?
— Cardi B (@iamcardib) June 5, 2022
June 13, 2022, 2:22 p.m. ET
June 13, 2022, 2:22 p.m. ET
Ben Casselman
Gross domestic product fell in the first quarter, but only because of an unusual mix of technical reasons. Consumer spending, job growth and other key measures of economic activity are still rising.
June 13, 2022, 2:13 p.m. ET
June 13, 2022, 2:13 p.m. ET
Clifford Krauss
Oil companies, which had been on a tear in recent weeks, are sliding with the rest of the equity markets. New lockdowns in China due to Covid have weighed on the oil market since China is the biggest importer of crude and petroleum products. It is another sign that there is a push-pull to prices, with Chinese pandemic policies threatening energy demand even as the Russian invasion of Ukraine continues to limit global supplies.
American stock indexes dropped sharply Monday, and a key bond market signal pointed to recession risks, indicating that investors are bracing for economic fallout as central banks — including the Federal Reserve — try to rein in rapid inflation.
The Fed, which will release its latest monetary policy decision and a fresh set of economic projections this Wednesday, had signaled that it will probably raise interest rates by half a percentage point this week and by another half a point in July. But following a surprisingly hot Consumer Price Index report on Friday, which showed inflation reaccelerating to 8.6 percent and touching a new four-decade high, investors began to pencil in an even larger move by its September meeting.
Wall Street is braced for interest rates to rise to a range of 2.5 to 2.75 percent as of the Fed’s September gathering, suggesting central bankers would need to make one three-quarter point move over the course of its next three meetings — possibly as soon as July. The Fed hasn’t made such a large move since 1994, and that 2.75 percent upper limit would be the highest the federal funds rate has been since the global financial crisis in 2008.
When the Fed lifts its policy interest rate, it filters through the economy to make borrowing of all kinds — including mortgage debt and business loans — more expensive. That slows down the housing market, keeps consumers from spending so much and cools off corporate expansions, weakening the labor market and broader economy. Slower demand can help price pressures to ease as fewer buyers compete for goods and services.
But interest rates are a blunt tool, so it is difficult to slow the economy with precision. Likewise, it is tough to predict how much conditions need to cool to bring inflation down convincingly. Supply issues tied to the pandemic could ease, allowing for a deceleration. But the war in Ukraine and China’s newly reimposed lockdowns meant to contain the coronavirus could keep prices elevated.
That is why investors and households increasingly fear that the central bank will set off a recession. Consumer confidence is plummeting, and a bond-market signal that traders monitor closely suggests that a downturn may be coming. The yield on the 2-year Treasury note, a benchmark for borrowing costs, briefly rose above the 10-year yield on Monday. That so-called inverted yield curve, when it costs more to borrow for shorter periods than longer periods, typically does not happen in a healthy economy and is often taken as a sign of an impending downturn.
June 13, 2022, 12:48 p.m. ET
June 13, 2022, 12:48 p.m. ET
Jeff Sommer
A bear market can be a good time to buy stocks. But it might take a while – months, even years – for investments to pay off. Money market funds are a reasonably safe place to park short-term cash to use as a cushion. Rates are starting to rise, although they still lag well behind inflation. I wrote about money markets in my latest Strategies column.
June 13, 2022, 12:52 p.m. ET
June 13, 2022, 12:52 p.m. ET
Jeff Sommer
Look at government I Bonds for money you know you won’t need to touch for at least 12 months. Their yields are tied to inflation and guaranteed to never fall below zero. They are currently paying 9.62 percent. My colleague Ann Carrns, who writes the Your Money column, explained it all last month.
June 13, 2022, 12:23 p.m. ET
June 13, 2022, 12:23 p.m. ET
Jason Karaian
A staggering number that puts the scale of a bear market in perspective: $7.4 trillion. That’s roughly how much market value has been erased by the fall in the S&P 500 from its January high, according to S&P Dow Jones Indices. The tech sector alone accounts for about 40 percent of the damage.
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The offer seemed too good to pass up: Deposit your cryptocurrency, and receive a yield as high as 18 percent.
That was the promise of Celsius Network, an experimental cryptocurrency bank with more than one million customers that emerged as a leader in the murky world of decentralized finance, or DeFi. Last year, DeFi exploded into a $100 billion industry, attracting both venture capital firms and regular investors with the prospect of lightning-fast gains. Celsius was managing more than $20 billion in assets.
But on Sunday night, as cryptocurrency prices slid, Celsius became the latest crypto venture to spiral into a crisis, announcing that it was freezing withdrawals “due to extreme market conditions.”
The announcement sent the market into a meltdown, as Celsius customers wondered whether they would be able to get their deposits back. Bitcoin is down 15 percent over the last 24 hours, falling to about $23,000, its lowest value since December 2020, according to CoinMarketCap, an industry price tracker. Ether, the second-most valuable cryptocurrency, is down about 16 percent.
The crash extends a dire period for cryptocurrencies, illustrating in graphic terms the risks of these experimental investments. Just a month ago, the implosion of a popular coin helped trigger a crypto meltdown that erased $300 billion in value across the market. The back-to-back crashes have fueled criticism that many of the complex crypto banking and lending projects known as DeFi are high-risk schemes teetering on the brink of ruin.
“DeFi is a house of cards,” said Cory Klippsten, the chief executive of Swan Bitcoin, a financial services firm focused on Bitcoin. “It’s speculation on speculation, and there’s no real-world use case for any of this stuff.”
DeFi exploded into the mainstream in 2021, as the prices of Bitcoin and Ether surged and crypto became a cultural phenomenon. Many customers were drawn to the potential for astronomical gains from complex crypto lending projects.
Celsius has emerged as one of the best-funded and most popular investment options for DeFi speculators. Founded in 2017 by the businessmen Alex Mashinsky and Daniel Leon, Celsius accepts deposits of Bitcoin, Ether and other cryptocurrencies, and then invests them, generating returns that are paid back to the depositors.
Celsius says it has attracted 1.7 million customers. Last year, the company held more than $20 billion in assets, though that figure has sunk over recent months as the market has declined. In the fall, Celsius announced it had raised $750 million from investors, giving it a valuation of more than $3 billion.
But the company also encountered its share of problems. For months, critics have wondered how it could sustain such dramatic yields without putting its depositors’ funds in jeopardy through risky investments. The company has drawn scrutiny from several state regulators, and its chief financial officer was arrested in Israel as part of a fraud investigation unrelated to Celsius.
“For Celsius, like the rest of the crypto marketplace, there exists no regulatory oversight, no consumer protections, no net capital requirements,” said John Reed Stark, a former Securities and Exchange Commission official and a vocal critic of the industry. “It’s not just the Wild West — it’s global financial anarchy.”
But Mr. Mashinsky rejected the criticism. In regular live streams, he aggressively marketed Celsius, talking up the huge yields. “That’s like going to the Olympics and getting 15 medals in 15 different fields,” he declared in December.
As recently as this weekend, just a day before the company stopped withdrawals, he accused a critic of spreading misinformation about the company. “Do you know even one person who has a problem withdrawing from Celsius?” he wrote on Twitter.
In the end, a drop in crypto prices appeared to put the company under more pressure than it could withstand. Prices fell late last week, after a report showed a surge in inflation in the United States, rattling markets.
With the prices of Bitcoin and Ether already tumbling, Celsius announced on Sunday that it was freezing withdrawals. The company declined to comment. But it said in the statement on its website that it had activated a clause in its terms of use that allowed it to take that step.
“Our ultimate objective is stabilizing liquidity and restoring withdrawals,” the statement said. “There is a lot of work ahead as we consider various options, this process will take time, and there may be delays.”
On a Reddit forum for Celsius customers, investors lamented the potential loss of their savings; one user posted a link to a suicide hotline.
“Basically, this is like a bank run,” said Campbell Harvey, a Duke University professor and an author of the book “DeFi and the Future of Finance.” “What I’m seeing is what appears to be a failure of risk management.”
Celsius is one of a number of DeFi start-ups that are coming under intense scrutiny as crypto prices drop.
The crash in May was accelerated by the collapse of TerraUSD, a so-called stablecoin with a fixed price pegged to the U.S. dollar. The coin’s $1 peg was underpinned by complex financial engineering that linked it to a sister cryptocurrency called Luna. When the price of Luna plummeted in May, TerraUSD fell in tandem — a “death spiral” that destabilized the broader market.
TerraUSD became popular for much the same reason as Celsius. It was marketed by an aggressive entrepreneur, Do Kwon, who offered a DeFi service called Anchor Protocol, in which customers could deposit TerraUSD and receive interest as high as 19.5 percent. Now TerraUSD is worth virtually nothing.
Hilary Allen, a finance expert at American University, said the Terra and Celsius crises showed that the fate of crypto investments — long hailed as part of a decentralized marketplace — actually hinge on the management choices of individual founders.
“Investors have relied on comforting tweets from founders like Terra’s Do Kwon and Celsius’s Mashinsky while things were heading south,” Ms. Allen said, “but then found themselves trapped in increasingly worthless positions once the founders make the decision to shut down.”
June 13, 2022, 11:56 a.m. ET
June 13, 2022, 11:56 a.m. ET
Eshe Nelson
European markets have closed for the day. The Stoxx 600 index closed 2.4 percent lower, the fifth consecutive day of losses. The index fell to its lowest level since March 2021.
June 13, 2022, 11:40 a.m. ET
June 13, 2022, 11:40 a.m. ET
Isabella Simonetti
Despite the market downturn, valuations — the measure of stock prices relative to corporate earnings — “remain far from depressed,” analysts at Goldman Sachs wrote in a recent report. They expect valuations to remain “roughly flat” for the year, and for earnings growth to drive the market back up: Their forecast is for the S&P 500 to close about 15 percent up from current levels.
June 13, 2022, 12:47 p.m. ET
June 13, 2022, 12:47 p.m. ET
Isabella Simonetti
Analysts at Morgan Stanley are also looking at valuations as a guide to where the market is going: “Over time, the lion’s share of stock returns is determined by earnings growth if one assumes that valuations are relatively stable. However, they are far from stable and often hard to predict.”
June 13, 2022, 10:46 a.m. ET
June 13, 2022, 10:46 a.m. ET
Ben Casselman
On days like this, it’s important to remember that the stock market is not the economy. Nearly half of U.S. families owned no stock at all in 2019, and even fewer have investments outside of their retirement accounts. For most Americans, what happens with jobs, wages and prices has a much larger impact on their day-to-day lives than the ups and downs of the markets.
June 13, 2022, 10:48 a.m. ET
June 13, 2022, 10:48 a.m. ET
Ben Casselman
Of course, the stock market can sometimes provide a hint of what will happen in the real world. Just look back to the beginning of the pandemic, when markets collapsed and then rapidly rebounded — effectively previewing a similar (but more drawn-out) roller-coaster ride for the economy writ large. Stocks are falling now, in part, because of fears that the Fed will cause a recession, which would be bad news for both investors and everyday workers.
June 13, 2022, 10:14 a.m. ET
June 13, 2022, 10:14 a.m. ET
Mohammed Hadi
Among the worst individual performers in the S&P 500 are companies like Norwegian Cruise Line, Ceasars Entertainment and Live Nation — stocks that in the past have reflected changing sentiment about the pandemic rather than interest rates or the economy.
June 13, 2022, 10:11 a.m. ET
June 13, 2022, 10:11 a.m. ET
Jason Karaian
Half an hour into trading in the United States, the weakness is broad based. Every sector of the S&P 500 is off by more than 1 percent, with energy the worst of the bunch, down nearly 5 percent.
June 13, 2022, 9:58 a.m. ET
June 13, 2022, 9:58 a.m. ET
Eshe Nelson
The Euro Stoxx 50, an index of the largest companies by market value in the eurozone, slipped back into bear market territory on Monday. It had already fallen 20 percent from its November peak in early March, when the region outlined a plan to become independent from Russian oil and gas.
June 13, 2022, 9:41 a.m. ET
June 13, 2022, 9:41 a.m. ET
Eshe Nelson
In many government bond markets, prices are falling and yields (a measure of borrowing costs for countries) are soaring higher as investors bet on how high central banks will have to raise interest rates to contain inflation.
June 13, 2022, 9:42 a.m. ET
June 13, 2022, 9:42 a.m. ET
Eshe Nelson
The European Central Bank said last week that it would raise rates by a quarter-point next month and probably a half-point in September. The yield on Germany’s 2-year bonds climbed above 1 percent on Monday for the first time since 2011.
June 13, 2022, 9:43 a.m. ET
June 13, 2022, 9:43 a.m. ET
Eshe Nelson
The prospect of higher interest rates is putting pressure on the bonds of countries with high debt levels. The gap between Italian and German 10-year yields climbed to the widest since early 2020. Traders are questioning how much the central bank can tighten monetary policy without risking a debt crisis. The bank, for its part, insists it has the tools to keep markets functioning smoothly.
June 13, 2022, 9:34 a.m. ET
June 13, 2022, 9:34 a.m. ET
Mohammed Hadi
The S&P 500 opened 2.5 percent down, falling below the 3837.25 threshold for a bear market. For most market watchers, it has to close the day below that level for this to be official. Recall that on May 20 stocks spend hours in bear market territory before climbing out by the end of trading.
June 28
June 29
3,805
3,810
3,815
3,820
3,825
3,830
3,835
June 13, 2022, 9:19 a.m. ET
June 13, 2022, 9:19 a.m. ET
Mohammed Hadi
Our colleagues in Seoul are reporting on a new problem for the global supply chain — a trucker strike in South Korea. On Monday, the government said the seven-day strike had resulted in production and shipment disruptions worth about $1.25 billion, Daisuke Wakabayashi and Jin Yu Young report.
June 13, 2022, 9:10 a.m. ET
June 13, 2022, 9:10 a.m. ET
Jeanna Smialek
Economists are predicting an aggressive message from the Federal Reserve at its meeting on Wednesday, following a higher-than-expected inflation reading last week, which showed prices climbing at the fastest pace since 1981. Read more about the inflation burst here.
June 13, 2022, 8:50 a.m. ET
June 13, 2022, 8:50 a.m. ET
Eshe Nelson
In Europe, the day started with some unexpectedly negative economic news. Britain’s economy shrunk 0.3 percent in April from the previous month, while economists had been expecting a small expansion.
June 13, 2022, 8:52 a.m. ET
June 13, 2022, 8:52 a.m. ET
Eshe Nelson
Gross domestic product was primarily hit by the winding down of Britain’s Covid test-and-trace program but manufacturing also declined as companies struggled to cope with rising prices, especially for energy. It’s the latest sign that Britain’s economic outlook is weakening in face of the highest inflation in four decades.
June 13, 2022, 8:48 a.m. ET
June 13, 2022, 8:48 a.m. ET
Jason Karaian
Cryptocurrencies are being hit hard, along with everything else. Bitcoin, the largest crypto, fell to an 18-month low of around $24,000. It has lost around half of its value so far this year. The value of all cryptocurrencies fell below $1 trillion for the first time since early 2021, according to Coinmarketcap, down about $2 trillion from their peak.
Bear markets, or when stocks drop at least 20 percent from their most recent peaks, are relatively rare and signal that investors are viewing the economy with serious pessimism.
There have been several instances of near-bear markets in recent decades, and as recently as May 20, the S&P 500 dipped into bear market territory in the afternoon, but rallied before the close.
The last bear market, which happened in early 2020 as the coronavirus spread and led to widespread global shutdowns, was the shortest on record. Stocks lost a third of their value in 33 days that year. But the recovery was relatively quick, with markets recouping losses in six months.
Now, as the Federal Reserve raises interest rates to tackle the fastest inflation in decades, there are concerns among investors the moves will cause the economy to contract. Recessions have often followed bear markets, but one does not necessarily cause the other.
One of three bear markets in the 1960s preceded a recession. The economy had grown robustly for much of the decade, and the Fed’s interventions aimed at taming inflation helped cause two market declines.
In the early 2000s, stocks began to slide and the economy slowed as the dot-com bubble burst. Then came the Sept. 11 attacks. A period of recession after those events lasted eight months.
Then in 2008 and 2009, the financial crisis and bear market led to the deepest recession in the American economy since the end of World War II.
Though stock markets are not indicators of broad economic activity, steep declines in the stock market have often occurred at the same time as downturns in the economy.
In today’s case, there are areas of the economy that are doing better than in previous bear market moments.
Among the economy’s bright spots: Unemployment is approaching the lowest rate in decades, with the economy having regained nearly 95 percent of the 22 million jobs lost at the height of pandemic lockdowns. And housing remains strong, though rising mortgage rates have begun to dampen activity.