(CTN News) – The S&P 500 will open the week with more losses, with market observers considering it to be a bear market at this level.
Investors are reconsidering what they’re willing to pay for a wide range of stocks, from high-flying tech companies to traditional automakers, due to rising interest rates, high inflation and the war in Ukraine. Big swings have become commonplace, and Monday is no exception.
The last bear market happened just two years ago, but this would still be a first for investors who started trading on their phones during the pandemic. Due to extraordinary actions by the Federal Reserve, stocks have for years tended to go mostly in one direction: up. A rallying cry of “buy the dip” after every market slide has become less effective after stinging losses and severe drops in risky assets like cryptocurrencies. Bitcoin fell another 12% early Monday and fell below $24,000. Bitcoin reached a high of $68,000 late last year.
Here are some frequently asked questions about bear markets
WHY IS IT CALLED A BEAR MARKET?
Wall Street uses the term bear market when an index such as the S&P 500, the Dow Jones Industrial Average, or an individual stock has fallen 20% or more from a recent high for a sustained period of time.
A bear is used to represent a market slump, but why? Sam Stovall, chief investment strategist at CFRA, said bears hibernate, so they represent a market that is retreating. Stovall said Wall Street’s term for a rising market is a bull market, because bulls charge.
Before Monday’s opening bell, the S&P 500 futures fell more than 2% to 3,810. It’s about 20.5% below the high set on Jan. 3. Since its peak of 16,057.44 on Nov. 19, the Nasdaq has fallen 29.37%. Dow Jones Industrial Average is more than 15% below its most recent peak.
Between February 19, 2020, and March 23, 2020, S&P 500 experienced a bear market. The index fell 34% during that time. It was the shortest bear market in history.
WHAT’S BOTHERING INVESTORS?
Interest rates are market enemy No. 1 due to the high inflation ravaging the economy. Wall Street is experiencing withdrawal symptoms due to low-interest rates, which act like steroids for stocks and other investments.
The Federal Reserve has made a pivot away from propping up financial markets and the economy with record-low rates and is now focused on fighting inflation. It has already raised its key short-term interest rate from the record low near zero, which had encouraged investors to move their money into riskier assets like stocks or cryptocurrencies to get better returns.