Recession fears are deepening with all three major stock market indices down Thursday.
The S&P 500 and Nasdaq ended comfortably in bear market territory, down 3.4% and 4.3% for the day, respectively, and 24% and 34% from their all-time highs.
The Dow Jones Industrial Average barely escaped entering bear market territory after tumbling down more than 700 points below the critical 30,000 level, clocking 19% below its all-time high in January.
All signs point to decreasing confidence among investors just one day after the Federal Reserve hiked interest rates up 0.75% in a forced maneuver to slow down the inflation rate.
Stocks rallied briefly on Wednesday in anticipation of the 0.75% increase, but those gains disappeared Thursday as investors may have realized a recession may be inevitable.
“Investor sentiment seems only to be able to focus on one thing at a time,” said Susan Schmidt, head of U.S. equities at Aviva Investors, speaking with CNBC. “Yesterday, the Fed delivered as people expected. It was combating the consumer price index data that was much higher than people expected and raised concerns about inflation being so aggressive. Investors are now remembering that the counter to this is slowing the economy.”
President Biden sat down with AP News on Thursday before market closing and commented on concerns over a potential recession:
“First of all, it’s not inevitable. Secondly, we’re in a stronger position than any nation in the world to overcome this inflation.”
The market seems to disagree with the president, and with the Dow hovering just above the bear’s den, it should not be a surprise if all three market indices close beyond the breach on Friday.
A bear market is when a market sustains a period of price declines of at least 20% from recent highs. It often reflects the negative investor sentiment. In the case of an index fund, like the S&P 500 or Nasdaq, it often reflects widespread pessimism in the overall stock market or economy.