The looming bear market will be different than those we’ve experienced in the past. The extended bear market of the early 2000s lasted until early 2003, following a lengthy bull market. The technology stock bubble, which affected early-stage dot-com companies, prompted the extended bear market. The home price bubble in 2007-2009 also caused the bear market, but that was a different kind of problem. Home prices were inflated, and many property owners were highly leveraged. The resulting financial system had many problems, requiring government intervention her leser du alt.

Stock investors

A bear market can be cyclical, meaning it will come and go every few years or even decades. Many stock investors use strategies such as short selling, put options, and inverse ETFs to ride out a bear market. While stocks are a good way to avoid losses during this time, they can also be scary. Nevertheless, this bear market provides an opportunity to buy cheap stocks, which is where bargain hunters come in.

Bonds

While historically bonds have not been a bad investment, they have become less attractive compared to stocks, particularly as the Federal Reserve has aggressively raised interest rates. This year, the Federal Reserve raised interest rates by 75 basis points, a massive jump that has led the yield on the 10-year Treasury note to double, approaching 3%. This is near the highs in a decade, but at the same time, the S&P 500 has dropped by 19 percent, putting it within the technical definition of a bear market.

Corporate profits

The reported earnings of companies are wildly different from the true profits. In a bull market, these profits should be nonexistent. However, there’s one interesting company in the equation. The Federal Reserve. Although most analysts aren’t aware of it, you’ll recognize it if you look at its balance sheet. In this looming bear market, the underlying reality of corporate profitability is reflected in asset prices, not reported earnings.

Rising interest rates

In recent days, fears about a fragile economy and high inflation have driven up Treasury yields to their highest levels in over a decade. Stocks have experienced similar short-term impact from rising interest rates, but history shows that stocks can weather these shocks for the long-term. The S&P 500 Index has gained double-digits eight out of 12 times after pessimistic sentiment.

Energy costs

In the last two weeks, the S&P 500 index has weakened by almost 11%. Last week, the selloff was indiscriminate, and all sectors took a hit. This type of indiscriminate liquidation is a hallmark of the looming bear market. While energy stocks fell almost 17% last week, they remain up 31% year to date. Utility stocks, on the other hand, were underperformed by the market over the previous five trading days.

S&P 500 index

A bear market is a period when the price of a stock has fallen by more than half from its high. This is usually the result of multiple investors selling their shares, creating a pessimistic atmosphere in the market. In the case of the S&P 500, this is not a bear market; it is a correction. However, the index is down 4.4% from its closing high on Jan. 3, 2022.