The recent slide in stocks has the S&P 500 approaching a bear market, Wall Street’s label for a sustained downturn in the markets that reflects serious pessimism about the outlook for the economy.
A stock or an index enters a bear market, at least by most conventional definitions, when it has dropped 20 percent from its last peak. At the close of trading on Monday, the S&P 500 had dropped 16.4 percent from its Jan. 3 record.
The Nasdaq composite, a benchmark that’s heavily weighted toward technology stocks, has been in bear market territory since early March. It is down 26.5 percent from its mid-November high.
The declines have come as investors grapple with the combination of the Russian invasion of Ukraine, which resulted in sanctions that severely limited gas supplies; global supply chain problems as the coronavirus pandemic grinds on; and an inflation problem that is prompting the Federal Reserve and other central banks to raise interest rates quickly.
Analysts have been predicting a bear market. The “headwinds” will “drag the S&P 500 into a bear market,” Victoria Greene, chief investment officer at the advisory firm G Squared Private Wealth, said last week. “We still have some structural problems — hawkish Fed, Ukraine, commodity price pressure, Covid shutdowns in China, inflation — that are pressuring growth expectations.”
The 20 percent trigger for a bear market — like the 10 percent trigger for what investors call a “correction” — is a somewhat arbitrary threshold. But it serves as a mile marker to show that investors have turned pointedly more pessimistic about the market.
There is skepticism about the use of the terms correction and bear market, whose precise definitions have only been in use since the 1980s. Corrections are not uncommon, with the last one having started in January of this year, one of nearly a dozen since 2000.
Some corrections don’t last very long, like one in early 2018, which lasted less than two weeks. In some instances, stocks regained their previous peaks in a few months.
Read More: How close is the S&P 500 to a bear market?
