Dow Jones enters bear market for the first time since Covid-led 2020 bottom

The Dow Jones index lost nearly 330 points on Monday, or 1,1% down, slipping deeper into a bear market territory after falling more than 20% below its record high, hit on the first week of the year, as the expectations of higher-for-longer interest rates following the Fed’s hawkishness, coupled with the surging dollar and bond yields triggered a stock selloff across the board.

Dow Jones index, Daily chart

The 30-stock index settled at 29,260 points yesterday, marking its fifth down trading day in a row, and recording a total loss of about 20.4% from its January 04, 2022, closing high. The move pushed the index into a bear market for the first time in more than two years, following in tandem with the other two major indices S&P500 and the tech-heavy Nasdaq Composite which have already entered a bear market in early summer.

A bear market occurs when an index drops by 20% or more from a recent high, but there is nothing official about the determination, and it’s the opposite of a bull market.

Investment confidence has shaken amongst stock traders by the prospects of a global recession driven by higher interest rates, the soaring U.S. dollar and bond yields, the surging inflation, and the ongoing Russia-Ukraine war.

The slowing economic environment could trim corporate earnings, hit hard both manufacturing and consumer spending, and bring extra volatility in the financial and currency markets.

Investors fear that the global central banks led by Federal Reserve, ECB, and BoE, would keep aggressively hiking interest rates to fight decades-high inflation, increasing the chance of the global economy falling into a recession.

The Federal Reserve approved a third-consecutive 0.75 percentage point rise last Wednesday, with more hikes expected at the next FOMC meetings as the Fed fights high inflation.