It’s been a rough year so far for stocks. The S&P 500 is off to its worst start since 1970 and its third-worst ever, falling briefly into a bear market last week, and the picture gets more grim depending on which way you turn.
- Investor concerns over inflation, high interest rates, gas prices, and the Ukraine conflict have stocks performing as badly this year as they have since 1970.
- The Nasdaq index and some stocks like Target and Snap are already in a bear market—or 20% off their recent peaks—while the benchmark S&P 500 is approaching the threshold.
- Just how far stocks will drop depends on whom you ask, but analysts see them falling between 7% and 15% before hitting bottom.
The index, which measures a broad array of companies in different industries, was down nearly 18% from its recent peak, just shy of the 20% decline that defines a bear market. Many individual stocks are deep in bear territory already, though. Major retailer Target fell 25% in one day when it announced disappointing earnings, and social media company Snap cratered by 43% Tuesday after reporting similar results. The tech-heavy Nasdaq is in a severe downturn as well, off nearly 30% Tuesday from its Nov. 19 high of 16,057.44.
The Dow Jones Industrial Average of large, blue chip companies has fared a little better, but it, too, is down significantly–more than 13% since its peak, which means it’s in a correction (which is defined as being down at least 10%).
Stocks are being battered for a number of reasons. Investors are concerned about persistent inflation, higher interest rates, sky-high gas prices, and the war in Ukraine, which is driving up the cost of oil and other commodities. Facing this onslaught of challenges, most market analysts are forecasting a prolonged downturn.
Stocks could fall another 7% to 15% from where they finished on Tuesday, according to a Goldman Sachs report that analyzed past economic recessions and showed that stocks could drop to 3,650 and possibly as low as 3,360. While the U.S. isn’t in a recession now, there’s a 35% chance the economy enters one during the next two years, analysts at the firm project.
If the S&P 500 does slip into a prolonged bear market, it could last a long time. Bank of America ran the numbers on 19 bear markets over the past 140 years, showing the average one lasted 289 days, sending stocks down 37.3% before they bounced back. The length of the bear is measured from peak to trough, so the start date for this one would be Jan. 3, when the S&P 500 closed at its record high of 4,796.56. That means the bear would finally die around Oct. 19 (coincidentally the anniversary of Black Monday, the day the market crashed in 1987), BofA predicted, and the index would drop as low as 3,000.
Morgan Stanley has predicted that the S&P 500 will probably drop at least to 3,800, and possibly as low as 3,460.
What’s an Investor To Do?
Analysts often advise people to stick with their strategies, regardless of market conditions. That’s because timing the market perfectly can be next to impossible, and selling at the wrong moment can be just as risky as buying at the wrong time, especially if you miss your chance to get back in. Between 2002 and 2021, for instance, the S&P 500 returned gains of 9.5%. But if you sat out the top 30 trading days during that two-decade span, your return would be just 0.4%, according to an analysis by Charles Schwab.
While many people see bear market conditions persisting for several months, that doesn’t mean there won’t be some positive days.
“The market is currently so oversold, any good news could lead to a vicious bear market rally,” analysts at Morgan Stanley wrote in a note.
That can be confusing, because it doesn’t necessarily mean the selling is done. Sometimes, such “snapback rallies” show an upward tick that can look like a return to growth, only to quickly give back the gains, said Todd Sohn, a market analyst at brokerage firm Strategas Securities. It’s already happened this year. By March 8, the S&P 500 had fallen 13%, but then it rebounded, and by April 4, it had gained enough to to be down just 4.5%. Then it plunged again for five straight weeks.
“It can be very difficult to navigate,” said Sohn.
Have a question, comment, or story to share? You can reach Terry at firstname.lastname@example.org.
Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!