Is the S&P 500 headed for a bear market?


Anthony Saglimbene | Global Market Strategist – Ameriprise Financial

 COMMITTEE PERSPECTIVES – May 9, 2022

Key Points

  • The S&P 500 Index may test the 3,900 to 3,800 level, which would approach a technical bear market.
  • Bear markets are defined by a 20% or more decline from a market top. 
  • Stocks are struggling with higher interest rates, tightening Federal Reserve policies, high inflation, a war in Ukraine, slowing growth in China, and continued supply chain pressures. 
  • In every bear market since 1950, and once a trough is reached, the S&P 500 has experienced solid returns over the next three, six, and twelve months. 
  • Maintaining discipline, utilizing a systematic dollar-cost averaging approach, and incorporating  intelligent drawdown strategies can  help investors navigate stock drawdowns.

While a question like that grabs headlines and clicks, at this point, the question misses the mark on where investors should be spending their time, in our view. 

The S&P 500 Index is down roughly 16% from its January high through May 9th. So, is the Index moving lower by another 4.0% going to change anything? From our vantage point, the answer is clearly no. The NASDAQ Composite and Russell 2000 Index are each off their all-time highs by 28%. 

Nevertheless, the S&P 500 moving into a bear market (defined by a 20% or more decline from a market top) would undoubtedly ramp up the doom and gloom headlines. Unfortunately, market environments like this tempt investors into making poor timing decisions regarding their portfolios, which can often detract from their longer-term investment success. 

Stocks are struggling with higher interest rates, tightening Federal Reserve policies, high inflation, a war in Ukraine, slowing growth in China, and continued supply chain pressures. Without an immediate solution in sight, investors are increasingly taking a sell first, ask questions later approach. Yet, history suggests that's precisely what needs to happen before the stock market can bottom and build a better base to eventually begin its next journey higher. 

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