Investors have been panicking this week in the face of fresh inflation data and weak corporate earnings, as a darkening global economic backdrop leaves little room for optimism. The storm of relentless volatility that has hung over trading in 2022 — the war in Ukraine, supply chain meltdown, the highest inflation in decades and the pandemic’s ceaseless complications — is showing no signs of abating. Confidence is dwindling that the Federal Reserve can bring inflation under control without triggering a downturn.
In times like these, it’s crucial for investors to take the long view according to Wayne Wicker, chief investment officer at MissionSquare Retirement. Bear markets happen on a relatively regular cycle: There have been 14 since 1945, lasting an average of nine and a half months. That’s significantly shorter than bull markets, which last 2.7 years on average, Wicker said.
The market is, in some sense, overdue: The last bear market ended in March 2020, early in the pandemic, and lasted only 33 days. Aside from that brief and anomalous downturn, there hasn’t been a sustained bear market since 2009, at the end of the financial crisis.
“We’ve gone more than 10 years without a real break to the downside,” Wicker said. “There’s a lot of investors out there that may have a 15-year career but they’ve never seen inflation and a rising rate environment like the one we’re currently involved in.”
Global markets got a boost Friday from news that China had unexpectedly slashed a key interest rate as the country grapples with the fallout from strict pandemic restrictions, but fears of a growing global slowdown are still hanging over trading according to Russ Mould, investment director at AJ Bell.
“Investors are worried that corporate earnings will come under pressure, businesses will invest less money and consumers will cut back on their spending,” Mould said Friday in commentary. “Markets price in what they think will happen and increasingly investors fear recession.”
Tesla’s shares sank 8.5 percent Friday amid more doubts over Elon Musk’s acquisition of Twitter and accusations of sexual harassment against the chief executive. Market volatility has been closely aligned with the tech giants in the past few months as investors rotate away from high-flying tech stocks. Tesla is down 46 percent for the year, while Meta’s shares are down 43 percent and Amazon’s are down 37 percent.
This week, attention has shifted to retailers as investors consider the myriad ways inflation can strap their businesses, from soaring fuel expenses to swelling payrolls. Shares of Ross Stores plummeted 24 percent after it became the latest retailer to deliver disappointing earnings results; the discount chain slashed its yearly outlook, pointing to an array of challenges eroding sales and margins. Target and Walmart voiced similar concerns about soaring costs and customers cutting back earlier this week, when they both endured their worst days of trading after their earnings reports spooked investors.
“We knew fiscal 2022 would be a difficult year to predict, especially the first half when we were facing last year’s record levels of government stimulus and significant customer pent-up demand as COVID restrictions eased,” Barbara Rentler, chief executive of Ross, said in a statement. “The external environment has also proven extremely challenging as the Russia-Ukraine conflict has exacerbated inflationary pressures on the consumer not seen in 40 years.”
Retail sales edged up 0.9 percent in April according to the Commerce Department, suggesting inflationary concerns aren’t sidelining consumers just yet, even as staples like gas and groceries become more costly. But that is likely to change if pressures don’t abate, and it’s making investors anxious.
Cboe’s VIX, dubbed Wall Street’s “fear gauge” is up 83 percent for the year according to MarketWatch.
“Another week of incredible market volatility makes it increasingly clear that a ‘buy the dips’ strategy is somewhat treacherous,” David Donabedian, chief investment officer of CIBC Private Wealth US, said Friday in commentary. “Real time economic data for May is beginning to show warning signs that the economy is slowing down.”
Although the market has yet to find the bottom, Donabedian noted, “investors should remember that this is an uncomfortable but normal part of the market cycle.”
Gas prices hit a fresh record high Friday, with the U.S. average surpassing $4.59 a gallon, according to data tracked by AAA. This week, for the first time, the average price topped $4 in every U.S. state. This time last year, the average for a gallon of gas was just $3.04.
Soaring energy prices present one of the biggest challenges for Group of Seven finance ministers at their upcoming meetings, as well as potentially deepening sanctions on Russia over its invasion of Ukraine. Europeans have discussed new measures to cut into Russia’s oil and gas revenue — the United States has already banned energy imports from Russia — but any such move could push prices up even further.
Crude prices climbed above $112 per barrel Friday amid the pressures.
JPMorgan said this week that the market is pricing in a 70 percent chance of near-term recession, suggesting investors lack confidence the Fed can contain inflation without triggering a downturn. Fed Chair Jerome H. Powell himself recently said the central bank should have moved faster to raise rates and has left the door open for more aggressive action.
The Fed has raised its benchmark interest rate twice this year, including by half a percentage point on May 4, and is expected to do so five more times this year to ease inflationary pressures. Fed officials have been attempting to pace increases so as not to smother economic growth, a difficult balance to strike. If the economy cools too quickly, it could fall into a recession, generally defined as two consecutive quarters of negative economic growth.
Asian markets closed higher across the board, boosted by news of China’s rate cut. The Hong Kong’s Hang Seng Index surged nearly 3 percent, the Shanghai Composite index gained 1.6 percent and Japan’s Nikkei 225 advanced nearly 1.3 percent.
European indexes charted fragile gains to cap off the week after suffering steep, inflation-fueled losses. The benchmark Stoxx 600 index closed up 0.7 percent, Britain’s FTSE100 rebounded 1.1 percent, and Germany’s DAX advanced 0.7 percent.