A history of bear markets shows stocks may have further to fall

Published Fri, May 20 20221:03 PM EDTUpdated Fri, May 20 20226:12 PM EDT

The brutal market sell-off pushed the S & P 500 into bear market territory briefly on Friday , and the rout could get a lot worse if history is any guide. The S & P 500 fell as much as 2.3% at its session low, sending the benchmark 20.9% below its intraday high in January. The index ultimately closed the wild day flat, sitting 19.2% below its record. There's no official bear market designation on Wall Street. Some will count Friday's decline at the intraday lows as confirmation of a bear market, while others may say it's not official until the index actually closes 20% off its high. There have been 14 bear markets since World War II on a closing basis and, on average, the S & P 500 has pulled back a median 30% and the downturn has lasted a median 359 days, according to Bespoke Investment Group. We are just 136 days out from the S & P 500's intraday record shortly after 2022 began. Investors have been on edge since the Federal Reserve raised its benchmark interest rate by half a percentage point this month, the most aggressive step yet in its fight against a 40-year high in inflation. The monetary tightening only adds to a list of worries for investors, ranging from war in Ukraine, the pandemic's path in China and global supply chain issues. On Wednesday, the S & P 500 suffered its worst one-day decline since June 2020, losing about 4%. The rout came after back-to-back quarterly reports from Target and Walmart that showed higher fuel costs and restrained consumer demand hurting results amid the hottest inflation in decades. "The stock market will remain in purgatory until the Federal Reserve smothers the inflationary wildfire with higher interest rates that cool consumer demand for goods, services, houses and hotel rooms," said Ryan Belanger, founder of Claro Advisors. The tech-heavy Nasdaq Composite has been hit even harder in the face of rising rates, down 27.4% year to date and off 30% from its record high, reached last November. "Investors should become accustomed to significant downside and upside moves in stocks, which is common during times of tremendous uncertainty," Belanger said.