The three bears have officially arrived. At Monday’s market close, the Dow Jones Industrial Average officially joined the S&P 500 and Nasdaq composite in a bear market, with all three indexes down more than 20% from January’s highs.
The Dow closed down 20.48% while the S&P was down 23.79%. The Nasdaq has fallen 31.76% since the beginning of the year. Monday’s rout followed turmoil abroad in the U.K., where the pound neared parity with the dollar as markets reacted to the new government’s budget.
While stocks on Tuesday opened higher, the bears see more bad news ahead as their forecasts are getting grimmer by the day. Ned Davis Research has updated its global recession model to 98% probability. According to Bloomberg, the model has only been this high during acute downturns, like 2020 and 2008-2009.
“Historically, a bear market has never ended before a recession has started,” NDR Chief U.S. Strategist Ed Clissold said earlier this month.
Wells Fargo Chief Economist Jay Bryson also updated his forecast on Federal Reserve rate hikes Tuesday, now projecting the target rate will rise to 4.75%-5% by March 2023, “which we estimate will be restrictive enough to push the economy into recession by mid-year,” he wrote in a note.
The current fed funds target rate is 3%-3.25%, 3% higher than at the start of 2022.
“We’ve just moved, I think, probably into the very lowest level of what might be restrictive, and certainly in my view and view of the committee, there’s a ways to go,” Fed Chair Jerome Powell said when announcing last week’s rate hike.
Morgan Stanley Wealth Management’s Lisa Shalett warned in a note, “This bear market is not over and investors should expect more negative surprises if they continue to underestimate the impact of rapidly rising rates.”