  on monday the sp 500 closed in a bear market for the first time since march 2020   the nasdaq composite has been in a bear market for a few weeks now while the is approaching one   a bear market represents a 20 decline from recent highs and can precede a recession   that said recessions are economic not stock downturns and they don’t always go handinhand with bear markets the stock market fell into bear territory monday as investors grappled with disappointing news that may herald an impending recession in particular the sp 500 declined 39 in monday’s session hitting its lowest level since march 2021 this marks the first time the sp 500 has wandered into bear country since february 2020 the 2022 stock selloff intensified as investors approach this week’s key federal reserve meeting fed officials are expected to hike interest rates at least 05 to combat rising inflation but recent events have many pricing a 075 hike into their portfolios – and worrying that when it comes to a recession vs bear market investors are safe from neither prior to monday’s close the last marketwide bear market happened two years ago when the pandemic kicked off but since then actions taken by the federal reserve to prop up the economy have also proved healthy for stocks rockbottom interest rates promarket quantitative easing and a tech boom off the workfromhome revolution all contributed to soaring prices but last year inflation accelerated following key product shortages investors began to fret that some companies were far overpriced for their fundamentals while others struggled to repeat their recordhigh pandemic profits and while market participants “bought the dip” during the initial decline many have since retreated as losses mount now almost a full year after inflation began rising the sp 500 – containing 500 of the largest market cap companies in the united states – has fallen into a bear market as a common barometer of corporate health the sp’s plight has many concerned for what lies ahead a bear market occurs when stocks fall at least 20 from recent highs however this number is largely arbitrary and primarily serves as the marker at which investors feel queasy about their portfolio performance mathematically there’s nothing special about the cutoff beyond its effect on investor psychology – and that it occasionally precedes economic recessions in lessspecific terms a bear market is a steep sustained stock market downturn that chips away at accumulated gains technically single stocks or funds can march into bear country though when we say “the market” has fallen we generally mean the sp 500 or another large benchmark the sp 500 has flirted with – but not closed below – a bear market for a while now dipping below 20 intraday but many believe the market isn’t “officially” a bear market until an index closes below 20 and monday that’s just what happened on the day the sp 500 tumbled nearly 4 clawing losses from its record january high down over 21 meanwhile the dow jones slipped 28 to settle 17 below its recent record while the nasdaq composite tumbled 47 to sit down 33 ytd the nasdaq egged on by declining tech values has squatted in bear territory for a few weeks now admittedly the market has been on a downswing for a while now but monday was particularly nasty as at one point every single stock in the sp index dipped with only a handful closing in the green meanwhile the cboe volatility index vix or “fear index” spiked to its highest level since may causes of the current bear market arguably the current bear market is overdue as several causes have piled up to contribute to the market’s decline in particular monday’s decline occurred after news outlets suggested that the fed could hike interest rates by 075 on wednesday instead of the expected halfpoint increase that news stems from friday’s inflation report which found that inflation rose 86 yearoveryear in may after previously showing signs of slowing even excluding food and energy prices – which are notoriously volatile – inflation leapt a whopping 6 yoy that said it takes more than a single inflation report to send the market squalling into bear country wall street has buckled under multiple causes for concern recently including   and soaring gas prices to name a few as investors and consumers have grappled with worrying indicators on these fronts worries of a recession have loomed large in many minds and when consumer and investor confidence falls it’s not uncommon for the markets to buck a bit lower download qai for ios today for more great qai content and access to over a dozen aipowered investment strategies start with just 100 no fees or commissions although bear markets and recessions can – and often do – go handinhand they’re usually caused by separate albeit linked activities that’s because the stock market and the economy while often linked are actually separate financial structures a recession is an economic slowdown traditionally defined as at least two consecutive quarters of declining gdp or gross domestic product the causes of recessions can vary including meanwhile a bear market takes place only in the stock market often a bear market kicks off when falling returns push investors to sell out triggering further pessimism that acts as a negative feedback loop the stock market can be a leading indicator for the economy as a whole this means that a bear market can sometimes be a warning signal that the economy is going to feel negative impacts like falling gdp rising unemployment low consumer confidence spending and income however this isn’t always the case it’s easy to see how the ingredients that kickstart a bear market can also lead to a recession however it’s rare for the bear market itself to cause a recession but what isn’t unheard of is for the federal reserve to take actions that contribute to recessionary environments – and that’s some of what we’re seeing right now unfortunately two of the biggest factors that can lead to a recession are playing against each other right now and because it’s the federal reserve’s job to address both of them they’re stuck between a rock and a hard place with no dynamite in sight the math is this skyhigh inflation which we’re currently experiencing can send the economy into a recessionstyle shutdown but the fed’s main tool to combat inflation involves increasing interest rates which discourages consumer and corporate spending and stunts business growth – which predictably spooks employers consumers and investors alike in other words the fed’s main tool to yank the rug out from under exorbitant prices is also what’s scaring investors and consumers leading to worries that fighting inflation could be what pushes the economy into a recession there’s no way to pull a guaranteed win in our current economic situation inflation can’t charge on forever without serious economic consequences but many have predicted that the fed’s increasingly aggressive rate hikes could prevent the us economy from a “soft landing” off its inflationary highs while exact expectations differ depending on who you talk to many believe that the us will have what fed chair jerome powell dubbed a “softish landing” in other words high interest rates will either lead to no recession or a mild recession followed by a relatively quick recovery with a strong labor market on his side it’s possible he’s right that said even if the fed manages to tamp inflation without triggering a recession investors may still have to contend with the downward pressure on their portfolios how long will the bear market last it’s impossible to accurately predict how long the sp 500 will remain in a bear market but what is clear is that they’re a periodic – if anxietyinducing – feature of healthy stock markets for instance between world war ii and 2021 the sp 500 declined at least 20 no less than nine times and at least 40 an additional three while the largest bear markets took around five years to bounce back from the market recovered in an average of 14 months from bear market lows and the last bear market which occurred in early 2020 lasted just a few weeks – with the sp 500 growing at a blistering annualized rate of 53 off the back of it when the stock market tanks it’s tempting to sell out especially if you’re feeling a pinch in your wallet but you’re more likely to lock in losses – that is selling stocks at a loss and guaranteeing your portfolio won’t have a chance to recover that’s why for most investors the best course of action is to just stay put riding out the waves can cause a bit of anxiety but even bear marketstyle price swings are relatively normal in the financial markets and in fact taking advantage of a diving market can be a great way to buy quality stocks at a substantial discount that said it’s still important to ensure you’re making smart moves such as using dollarcost averaging taking advantage of aibacked portfolio rebalancing or buffing your returns with dividendpaying stocks additionally you may increase your holdings in investments like consumer staples and healthcare whose business model can potentially prove more resilient to economic downturns there’s no real way to tell if the current market decline heralds a recession or not though investor and consumer anxiety about rising interest rates is real reliable indicators of recession – including the nearterm forward spread and sahm rule – show no signs of impending doom still there’s no harm in being prepared in fact it’s foolish not to that’s why we here at qai have put together a variety of aibacked investment kits to prep your portfolio for whatever comes your way from our large cap kit which benefits from the longterm macro view that us gdp growth will be slow to the inflation kit which can help hedge against rising prices you can protect your portfolio on multiple fronts and for added security you can turn on portfolio protection to help manage risks in these turbulent times download qai for ios today for more great qai content and access to over a dozen aipowered investment strategies start with just 100 no fees or commissions