It is time for investors to start preparing for the long haul. The S&P 500 has officially entered bear market territory, according to the Bank of America on Monday.
Stocks are volatile lately because of the looming inflation and interest rate hikes from The Federal Reserve. A 75 point increase in stock prices is expected Wednesday, which is higher than the anticipated 50 point hike.
The latest report follows Friday’s hot CPI inflation estimate which exceeded economist expectations and indicated no signs of slowing down.
The Bank of America isn’t alone in thinking that we’re at the bottom until inflation prints its peak.
“Wall Street sentiment is dire but no big low in stocks before big high in yields and inflation,” said the Bank of America. “The latter requires uber-hawkish Fed hikes in June and July.”
The current state of Wall Street is a result of several factors, including global growth optimism declining to its lowest point in 14 years and fears that inflation will reach unprecedented levels. This all combines with corporate profit outlooks being at their worst since 2008.
The market has shown that it’s not a one-and-done situation when the bear cycle arrives. A V-shape recovery is typically seen in bank stocks, which indicates an upcoming recovery similar to what happened last time – around March 2020.
Chris Murphy of Susquehanna International Group analyzed all 12 bear market sell-offs that occurred through the decades.
“Looking at the other 12 bear markets, we see that on average, after the SPX enter bear market territory, it continues to fall another 14%, taking 103 trading days before reaching a bottom,” said Murphy.
There’s no telling how low the S&P 500 could go if another major crash happens, but many estimate it would fall to 3,250.
Investors will be able to breathe after the midterm elections in early November which could signal that markets are bottoming out as the bottom of the market rarely happens around summertime.