Wall Street shakeout clinches bear market label for S&P 500

NEW YORK — The S&P 500 ended more than 20% below its Jan. 3 record closing high on Monday, confirming a bear market for the benchmark as investors sold stocks amid worries over whether the Federal Reserve will be able to tame inflation without triggering a recession.

A close of more than 20% below the record high confirms that the index is in a bear market, according to a commonly used definition. It is the first time the S&P 500 has confirmed a bear market since the 2020 Wall Street plunge brought on by the COVID-19 pandemic.

Stocks have been volatile since the start of the year, with Russia’s invasion of Ukraine in late February taking a heavy toll on markets.

But increasing worries about inflation and the U.S. central bank’s monetary policy tightening as it attempts to quell it have fueled much of the recent sell-off.

Major U.S. stock indexes on Friday posted their biggest weekly percentage declines since January and ended sharply lower after a report showed a steeper-than-expected rise in U.S. consumer prices in May.

“My view is that we won’t really see a turnaround for the stock market until we see some kind of pivot from the Fed. And by that I mean getting a little less aggressive, which I know is going to take time because right now the trajectory is to get more aggressive,” said Kristina Hooper, chief global market strategist at Invesco in New York.

“The silver lining in all of this is that the more pessimism that abounds, the more potential there is for upside,” Hooper said.

The S&P 500 closed Monday at 3,749.63, down 3.9% on the day and 21.8% below its Jan. 3 record closing high of 4,796.56.

The Fed is expected to hike interest rates by 50 basis points when it concludes its two-day meeting on Wednesday, and expectations for a hike of 75 basis points at the June meeting have jumped to nearly 30% from 3.1% a week ago, according to CME’s Fedwatch Tool.

One worry is that an aggressive push higher on rates by the Fed could send the economy into recession.

This year’s downturn is a pivotal shift for the market after its swift and strong post-pandemic rally. The S&P 500 rose 114.38% from its closing low on March 23, 2020, to its Jan. 3 record closing high this year.

“The reason why the market is not bottoming, we think, is because there still remains a ton of uncertainty. And because of that, it’s likely that it’s going to be extremely choppy here,” said King Lip, chief investment strategist at Baker Avenue Asset Management in San Francisco.

The Nasdaq earlier this year confirmed that it was in bear market territory, the first of the three major U.S. indexes to hit such levels. (Reporting by Caroline Valetkevitch; Additional reporting by Noel Randewich in San Francisco; Editing by Chuck Mikolajczak, Nick Zieminski, Aurora Ellis and Mark Porter)