A trader works on the floor of the New York Stock Exchange (NYSE) in Manhattan, New York, U.S., May 18, 2022. REUTERS/Andrew Kelly/File Photo/File Photo

NEW YORK, June 13 (Reuters) – The stock market’s brutal year approached a grim milestone as Monday’s tumble in the S&P 500 threatened to leave it in a bear market for the first time since March 2020, fueled by worries about soaring inflation, a hawkish Federal Reserve and future economic growth.

The benchmark S&P 500 (.SPX) fell below 3837.248 during Monday’s session, a drop that, on an intraday basis, put it more than 20% below its all-time high. closing on January 3. If the index sustains such a decline until the market closes, the 20% decline would confirm a commonly used definition of a bear market.

If history is any guide, a bear market would mean more pain could be in store for investors. The S&P 500 has fallen an average of 32.7% in 13 bear markets since 1946, including a nearly 57% drop in the 2007-2009 bear market during the financial crisis, according to Sam Stovall, chief investment strategist at the CFRA.

It took just over a year on average for the index to bottom out during bear markets, then about two more years to return to its previous high, according to the CFRA. In the 13 bear markets since 1946, the return to equilibrium levels has varied, taking as little as three months to as long as 69 months.

The S&P 500 jumped some 114% from its March 2020 low as stocks benefited from emergency policies put in place to help stabilize the economy in the wake of the COVID-19 pandemic.

These gains reversed in early 2022 when the Fed became much more hawkish and signaled that it would tighten monetary policy at a faster pace than expected to combat soaring inflation. It has already raised rates by 75 basis points this year and expectations of further hikes to come, including at the Fed meeting this week, have weighed on stocks and bonds.

Fed Chairman Jerome Powell has pledged to raise rates as high as needed to kill inflation, but also believes policymakers can steer the economy toward a so-called soft landing. The war in Ukraine has added to volatility this year, causing oil and other commodity prices to spike again.

After the S&P 500 nearly confirmed a bear market last month, the market rallied on hopes that the Fed could slow its pace of rate hikes later this year.

But Wall Street recorded its biggest weekly decline since January last week, with the latest blow to stocks on Friday, when data showed US consumer prices accelerated in May as gasoline prices have reached an all-time high and the cost of food has skyrocketed, leading to the biggest annual increase in nearly 40 and a half years. Read more

A few sectors of the stock market were spared. Energy stocks have soared this year, as have oil prices, while defensive groups such as utilities have held up better than broader markets.

On the flip side, tech stocks and other high-growth companies have been hit hard. These stocks – which have been strong performers through much of the bull market of the past decade – are particularly sensitive to higher yields, dampening the appeal of companies with more cash flow weighted going forward and declining. when discounted at higher rates.

Some of the largest of these companies, such as Tesla (TSLA.O) and Facebook owner Meta Platforms (META.O), are also heavily weighted in the S&P 500 Index.

Investors have been looking at various metrics to determine when markets will rise, including the Cboe Volatility Index (.VIX), also known as the Wall Street Fear Gauge. Although the index is high relative to its long-term median, it remains below levels reached during previous major sell-offs.

Reporting by Lewis Krauskopf; edited by Megan Davies and Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.