Bear is celebrating a field day on the US stock market. A bear market is usually triggered when the market falls at least 20 percent from its previous high. The S&P 500 fell to 3,810 during Friday’s session, or about 20.6% lower than the January 3, 2022 record close, then reduced losses to 18.7%. Thus, for the S&P 500 (SPX), the bear market was close to ringing the bell but the index could not close below 20% of its last record.
U.S. futures were at least 1 percent higher before the trading session opened on Monday morning.
A dramatic late-session rally pushed the S&P 500 back to the edge of the beer market, which closed at 3,901.36. Ross Stores Inc. And Deere & Co.rec posted double-digit declines in Friday’s session and VF Corp., American Tower REIT, Eli Lilly & Co. And MarketAxess Holdings Inc. Was among the top beneficiaries.
How low will the S&P 500 fall?
Some analysts expect the market to decline further in the coming days. In terms of valuation, the S&P 500 PE ratio is closer to its historical norm, 16.6 vs. its historical average since 2000 is 16.6. However, this does not make the S&P 500 cheaper but a fairly valuable four quarters when using the next income estimate.
The bearish market love of the S&P 500 was seen in 1998, 2011 and 2018 when the benchmark either fell below or near the 20% level on an intraday basis and then reversed to never test bear-market water again.
In the latest scenario, in 2018, the bull market got within 20% of the sinking point in December but started a year after six days where the S&P 500 rose 29% and the Nasdaq 100 rose 38%.
Over the last 140 years, in 19 US equity beer markets, the S&P 500 has seen an average fall of 37.3%, with an average duration of 289 days. If repeated, Bank of America (BofA) says the latest bear market will end in October, with the S&P 500 at 3000 points, about 23% below current levels.
The Fed’s policy on dealing with inflation is to keep stocks from sliding in a hurry. With planned rate hikes and tightening of the liquidity system, the already sluggish economy could prove to be a solid nut to catch cracks for bulls. Unless there is a clear vision for corporate earnings, the market can give long-term investors the opportunity to pick stocks in the long run. Using ETFs may be a better way to take exposure across the economy and ride the next bull run with relative ease.