John Hugh DeMastri on September 30, 2022
All three major stock indices ended the third quarter in a bear market after closing Friday, together having the worst nine-month stretch in a calendar year since 2002, after yet another pessimistic inflation report sent all three indices tumbling at least 1.5%.
While the Dow Jones wavered in and out of bear market territory all week, stocks have generally been falling since the Federal Reserve announced its third round of significant interest rate hikes in just four months, which the majority of economists expect will trigger a recession as a cost of reducing inflation. On the heels of a higher-than-expected inflation report Friday by the Fed’s preferred inflation metric, the Personal Consumption Expenditures (PCE) Price Index, investors saw more reasons for the Fed to continue its aggressive rate-hike campaign.
“It’s really just another indication that inflation is still broadening,” Eric Diton, president at The Wealth Alliance, told The Wall Street Journal. “For anyone who’s watching the Fed, it’s ammunition for the Fed to keep hiking rates, which is certainly bearish for stocks and bonds.”
This is the first time stocks and bonds have fallen in tandem for three consecutive quarters since 1976, according to Strategas Research.
— unusual_whales (@unusual_whales) September 30, 2022
As of Friday, the Dow was down 21% on the year, while the S&P 500 lost 25% and the Nasdaq had plummeted 32%, all easily surpassing the 20% loss that is typically considered the sign of a bear market, according to the WSJ. The Nasdaq and S&P 500 fell for the third quarter in a row for the first time since a streak that ended in March 2009.
The Dow also fell for a third straight quarter, but still has a ways to go to match the five-quarter decline from October 2007 that lasted through January 2009, according to data provided by the WSJ.
Inflation has also been setting records recently, with the cost of food increasing at the highest rate in 40 years in August, while inflation, as measured by the Consumer Price Index (CPI), hovers near historic highs at 8.3% in August. Federal Reserve officials have been repeatedly clear that the central bank will continue hiking rates until inflation is reduced, even at the cost of jobs or inducing a recession.
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