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Forbes: Bear Market Looms As 'Relentless Selling' Batters Stocks-Not Even Lower Inflation Can Help Now

April 27, 2022
Bear Market Crash

Article by Jonathan Ponciano in Forbes

As the market struggles to brush off some of its worst losses in more than a year, a growing number of experts are warning more stocks could tumble into bear market territory as the Federal Reserve unwinds its pandemic-era economic support—even if inflation subsides more quickly than expected.

KEY FACTS

While major stock market indexes plunged as much as 2% Tuesday, analyst Tom Essaye of the Sevens Report warned clients he remains “cautious” on the S&P 500 as stocks struggle to stabilize, pointing to “relentless selling” on Friday as a potential predecessor to a sharp downturn of as much as 5%.

In a Monday note, Morgan Stanley’s Michael Wilson said the Friday plunge, which saw the Dow tumble nearly 1,000 points for its worst day since October 2020, indicates the market is moving to a “much broader selloff phase,” during which stocks in typically resilient industries—such as consumer staples—fall.

“The S&P appears ready to join the ongoing bear market,” Wilson said, cautioning that materials and energy stocks—two of the year’s top-performing sectors—have started to post “eye-popping” losses, while defensive stocks (such as in consumer staples) have gotten “expensive” relative to earnings.

In another potentially bearish sign for stocks, the analyst said inflation has likely peaked after reaching a 40-year high last month, thereby taking some pressure off the Federal Reserve as it hikes interest rates, but also meaning lower sales and earnings growth for companies benefiting from the price hikes.

For many companies, it “could be painful” if inflation declines swiftly and sharply, particularly in the materials and energy sectors, which have benefited from rising commodity prices, Wilson says, adding: “Be careful what you wish for.”

CRUCIAL QUOTE

“Inflation is peaking, but that's not bullish because it means .......

To read this article in Forbes in its entirety, click here.

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