Note: Very rarely do I see mistakes in The Economist, but I have to make some corrections in this piece.
$SPX The S&P 500
The S&P 500 marked its All-Time High of 4818.62 on 4 JAN 22
Friday, 13 MAY 22, the S&P 500 closed at 4023.89
The S&P 500 is down -16.49% since its All-Time high in January.
$COMPQ The Nasdaq Composite
The Nasdaq Composite notched its All-Time High of 16,212.23 on 22 NOV 21.
Friday, 13 MAY 22, the Nasdaq Composite closed at 11,805.00
The Nasdaq is down -27.18% since its All-Time high in Nov. 2021
The Economist headline: A new bear market in American shares
Could the sell-off raise the danger of a recession?
America’s bear season, when hikers are advised to stay on their trails and carry pepper spray, runs for two months from September. It has come early for investors. The s&p500 index of leading American stocks has fallen by 18% from its all-time high in January, ten percentage points of which was in the past month alone. The index is flirting with bear-market territory, a 20% decline. The nasdaq, a tech-heavy benchmark, has plunged well past that level. Since November it has shed 29%.
For 18 months or so, since inflation began to climb, investors have fretted over how much the Federal Reserve would tighten policy, and how painful that would be for asset prices. The latest rout, which followed a meeting of the Fed on May 4th at which America’s central bank raised rates by 0.5 percentage points, offers an answer: very painful.
The market expects the Fed to raise interest rates by another 1.9 percentage points this year, even as it shrinks its balance-sheet fast. And the more entrenched inflation becomes, the more aggressive the Fed will have to be. Worryingly, American households expect inflation to be above 6% a year from now and almost 4% in three years, according to a survey from the Federal Reserve Bank of New York on May 9th.