Dow surges 700 points as Wall Street springs back from bear market

On May 23, 2022

Wall Street was poised for some relief Monday, with the major U.S. indexes moving higher in morning trading after last week’s dizzying volatility. But the global and economic undercurrents that have roiled markets for weeks show no signs of abating.

The Dow Jones industrial average had climbed more than 700 points, or 2.2 percent by lunchtime as the blue-chip index attempted to shake off its longest weekly losing streak in nearly a century. The broader S&P 500 advanced 1.9 percent, while the Nasdaq gained 1.6 percent.

The S&P 500 remains on the precipice of a bear market — defined as falling 20 percent from a recent high — having dipped into that terrain Friday before squeaking out a last-minute recovery. The tech-heavy Nasdaq is already down more than 27 percent for the year, and the Dow is off nearly 14 percent.

Markets loathe uncertainty, but 2022 trading has been mired in it as investors try to parse a complex, competing array of forces weighing on the global economy, from decades-high inflation to the evolving consequences of the pandemic and the war in Ukraine.

U.S. may be barreling toward recession in next year, more experts say

Investors appear to lack confidence the Federal Reserve can tame roaring inflation without tipping the economy — which is already slowing amid a wide range of head winds — into a recession. Soaring costs are cutting into businesses’ profits and forcing households to spend more at the gas pump and grocery stores. Last week, Treasury Secretary Janet L. Yellen warned that “higher food and energy prices are having stagflationary effects … depressing output and spending and raising inflation all around the world.”

The Fed’s interest rate hike earlier this month — the second of seven forecast for 2022 — could make borrowing more expensive for corporations and households. This is supposed to ease inflationary pressures. But Fed officials are attempting to raise interest rates at such a pace that it doesn’t completely smother economic growth, a difficult balance to strike. If the economy cools too quickly, it could fall into a recession, generally defined as two consecutive quarters of decline.

Russ Mould, investment director at AJ Bell, said that he says he sees the “classic” phases of a bear market forming as investors come to grips with the onslaught of challenges to the growth stocks have enjoyed since the short but significant downturn they suffered when the coronavirus first brought the global economy to a halt. Pandemic favorites have seen their shares tumble in 2022, including Microsoft (down 25 percent) Amazon (36 percent), Peloton (58 percent), Netflix (68 percent) and Zoom (53 percent).

Bull markets “crack at the periphery first,” Mould noted in commentary Monday. “Trouble then filters through to core assets as confidence wanes.”

These cracks have been forming for a while now, their influence impossible to ignore in more speculative areas of…