Close below 3,837.25 confirms the end of the pandemic bull market
The bear is back.
The S&P 500 on Monday confirmed what many investors have been saying for months: The large-cap benchmark is in the grips of a bear market.
Stocks suffered sharp losses Monday after major benchmarks saw their worst week since January. Much of the weakness was attributed to the Friday reading of the May consumer-price index, which surged to 8.6% year-over-year -- a 40-year high. Investors fear the Federal Reserve will have to raise rates even more aggressively than already expected, risking recession in their effort to tame inflation.
The S&P 500 fell 151.23 points, or 3.9%, to end at 3,749.63, down 21.8% from its Jan. 3 record close and surpassing the 20% pullback threshold traditionally used to define a bear market.
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The S&P 500 briefly traded below the bear-market threshold in May, but didn't close below it. Stocks subsequently bounced, but the rebound has since given way as recession fears have increased.
The Dow Jones Industrial Average finished with a loss of 876.05 points, or 2.8%, to finish at 30,516.74, after dropping more than 1,000 points at its session low. A close below 29,439.72 would put the blue-chip gauge into a bear market. The tech-heavy Nasdaq Composite , which slumped into a bear market earlier this year, dropped 4.7% on Monday, leaving it nearly 33% below its Nov. 19, 2021, record close.
To be sure, many investors and analysts see a 20% pullback as an overly formal if not outdated metric, arguing that stocks have long been behaving in bearlike fashion.
Note that the S&P 500's finish on Monday means the start of the bear market is backdated the Jan. 3 peak. A bear market is declared over once the S&P 500 has risen 20% from a low.
How have stocks behaved once a bear market has been confirmed? History shows that usually more pain was in store.
There have been 17 bear -- or near-bear-- markets since World War II, said Ryan Detrick, chief market strategist for LPL Financial, in a May note. Generally speaking, the S&P 500 has fallen further once a bear market begins. And, he said, bear markets have, on average, lasted about a year, producing an average peak-to-trough decline of just shy of 30%. (see table below).
Beyond the averages, there's a lot of variability in the length and depth of past bear markets. The steepest fall, a peak-to-trough decline of nearly 57%, occurred in the 17 months that marked the 17-month bear market that accompanied the 2007-2009 financial crisis. The longest was a 48.2% drop that ran for nearly 21 months in 1973-74. The shortest was the nearly 34% drop that took place over just 23 trading sessions as the onset of the COVID-19 pandemic sparked a global rout that bottomed out on March 23, 2020, and marked the start of the current bull market.