Wall Street tips into bear market territory on recession fears

Stock Sell Off Drags Market Down Sharply
The US’s top index, the S&P 500, at one point yesterday lost two per cent, ratcheting up its losses since its peak in January to more than 20 per cent, breaching the threshold for a bear market (Photo by Spencer Platt/Getty Images)

Intensifying concerns about the health of the global economy has tipped Wall Street into bear market territory.

The US’s top index, the S&P 500, at one point yesterday lost two per cent, ratcheting up its losses since its peak in January to more than 20 per cent, breaching the threshold for a bear market.

The Dow Jones, another top Wall Street index, posted its eighth straight week of losses, despite edging higher yesterday.

The last time that happened, the US was in the teeth of the Great Depression in the late 1930s.

The tech-heavy Nasdaq dipped 0.3 per cent.

Global stocks have suffered heavy losses recently, driven by the outlook for the global economy souring.

Historically high inflation is threatening to tip some of the world’s economic engines into reverse, weighing on equities.

Prices are nine per cent higher than they were a year ago in the UK, the quickest acceleration in 40 years.

Across the pond, inflation is running at 8.3 per cent, also a four decade high, while in Europe, it has climbed to 7.4 per cent, the hottest rate since the creation of the euro in 1999.

Stagflation – when growth is weak amid soaring prices – is becoming a real risk for rich economies.

Central banks are pushing through what it is expected to be the quickest tightening cycle in recent history to tame inflation.

The US Federal Reserve hiked rates 50 basis points for the first time 2000 at its last meeting, while the Bank of England has lifted rates from 0.1 per cent to a 13-year high of one per cent in the space of six months.

The European Central Bank is lagging behind, deciding not to raise rates yet. However, investors expect the central bank to move this year. Rates in Europe have been in negative territory for around a decade.

Less accommodative monetary policy tends to weigh on stocks by knocking company valuations and making it more expensive for firms to borrow.

Higher rates also clamp down on growth by making it more attractive for households to save and more expensive to borrow.