The US stock markets, which have seen steep sell-offs in the recent weeks, have set the dubious record of having suffered the worst first-half loss in about 50 years. Analysts and investment banks have been warning investors in the last several months about an impending recession and a market rout. The numbers for the quarterly and half-yearly market losses suggest that their fears have come true.
In the last six months, the benchmark S&P 500 stock market index lost 20.6 percent, which is the steepest half-yearly loss for the US stocks since 1970.The index also breached the bear market territory, having lost more than 21 percent from the January high.
Meanwhile, the Dow Jones Industrial Average dropped more than 15 percent in the first half of 2022, which is its biggest plunge since 1962.
For the quarter, the S&P 500 plunged more than 16 percent, which is its biggest drop since March 2020. While the Dow lost 11 percent in the second quarter, the Nasdaq plunged losing 22.4 percent, the steepest quarterly fall since 2008.
Analysts fear that the worst is not yet over for the markets as investors are still fretting over sky-high inflation and a monetary policy that's projected to become tighter.
"If we have any words of comfort, it is that universal losses at this pace rarely take place in successive quarters, but this is not the same as saying that further losses should not be anticipated ... This still very much looks to be the middle of the story, the period in which a previously 'pacific' outlook is replaced by something far stormier, and we are yet to see any signs that the weather is about to turn for the better," wrote Michael Shaoul of Marketfield Asset Management, according to CNBC.
Investors and market participants are worried that the Federal Reserve will go more hawkish on monetary policy as it is grappling with sky-high inflation. US inflation, which soared to more than 8 percent to hit a 40-year high, has been primarily caused by the Russian invasion of Ukraine and the strain it caused on the global commodities markets.
Interest Rates and Money Squeeze
Analysts worry that hiking the interest rates will result in a money squeeze that will eventually push the US into recession, thereby affecting corporate profits.
A conservative estimate is that the S&P 500 can potentially drop another 20 percent if the country slips into recession.
According to some economists, the world's biggest economy could fall into a recession as early as this year. "If the US Federal Reserve continues hiking rates the stock market will react quite negatively," Dan Wang, chief economist at Hang Seng Bank China, said, according to the BBC.
Latest Economic Data
Data showed on Tuesday that the US economy contracted in the first quarter at a faster rate than anticipated earlier. The world's largest economy shrank at an annual rate of 1.6 percent in the first quarter, according to the Commerce Department's data.
The drop has been attributed to a decrease in exports, drop in federal government spending aand private inventory investment, as well as a decrease in state and local government spending. At the same time, imports increased during the period.
"Shares are likely to see continued short-term volatility as central banks continue to tighten to combat high inflation, the war in Ukraine continues and fears of recession remain high," says
Shane Oliver at AMP Capital.