Haworth notes that despite dramatic moves by the Federal Reserve (Fed) to ease economic growth, higher inflation endures. Higher inflation is a result of demand for goods and services outpacing supply. The persistent nature of an elevated inflation rate appears to be a key cause of investor anxiety. “In today’s market, we saw a massive change in sentiment,” says Haworth. That downturn was short-lived, and those who remained invested in stocks prospered through much of 2020 and throughout 2021. Concerns about the unknown ramifications to the economy from social distancing and travel restrictions caused investors to temporarily lose confidence in stocks.
In February and March 2020, investors were just beginning to come to grips with the reality of the COVID-19 pandemic. This easy credit environment created problems throughout the financial system that required significant government intervention. Too many property owners were highly leveraged, and not capable of sustaining the mortgages they obtained. The 2007 to 2009 bear market was driven in large part by a collapse in home prices.
BEAR MARKET DRIVER
The most notable driver of this significant setback for equity prices was the bursting of a stock market “bubble” in prices for technology stocks, particularly some early-stage dot-com companies, as investors stopped paying higher prices for companies with little to no earnings. In early 2000, an extended bear market began that persisted until early 2003, on the heels of a long-lasting bull market. Tracking previous market declinesĮxplanations for most serious market downturns are typically easier to come by after the fact. Stocks rebounded after reaching their June lows but retreated once again as investor fears of a recession rose. Three key events contributed to the environment, including persistently high inflation, a dramatic change in monetary policy by the Federal Reserve and the economic fallout from Russia’s invasion of Ukraine.
“The most recent downturn can be attributed to rising level of uncertainty for investors,” says Rob Haworth, senior investment strategy director at U.S. In other cases, they may be due to external events which overwhelm other fundamental factors that traditionally drive stock market performance. Sometimes the changes are related to excessive market valuations after an extended bull market. Stock market downturns such as these occur periodically, and for various reasons. The technology-heavy NASDAQ Composite Index (which includes about 3,000 common equities) and the Russell 2000 Index of small-cap stocks both dropped into bear market status earlier in the year. This represents a decline that exceeds 20% of the peak value of the index. stocks, as measured by the benchmark S&P 500 index, officially fell into “bear market” territory in June 2022. Yet markets remain volatile in light of recent Federal Reserve indications it will maintain an aggressive approach to fighting high inflation.Markets rebounded shortly thereafter, regaining some of the ground lost during the downturn.stocks (a decline of 20% or more) in 2022. Find a financial advisor or wealth specialist.
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