Wall Street slips into a bear market

Wall Street opened the week with heavy losses that put the benchmark S&P 500 at a level considered to be a so-called bear market.

Rising interest rates, high inflation, the war in Ukraine and a slowdown in China's economy have led investors to reconsider what they're willing to pay for a wide range of stocks, from high-flying tech companies to traditional automakers. Big swings have become commonplace and Monday was no exception.

The last bear market happened just two years ago, but this would still be a first for those investors that got their start trading on their phones during the pandemic. Thanks in large part to extraordinary actions by the Federal Reserve, stocks have for years seemed to go largely in only one direction: up. The "buy the dip" rallying cry after every market slide has grown fainter after stinging losses and severe plunges in risky assets like cryptocurrencies. Bitcoin fell below $23,000 on Monday. The price for Bitcoin neared $68,000 late last year.

Bear markets

A bear market is a term used by Wall Street when an index like the S&P 500, the Dow Jones Industrial Average, or even an individual stock, has fallen 20% or more from a recent high for a sustained period of time.

Why use a bear to represent a market slump? Bears hibernate, so bears represent a market that's retreating, said Sam Stovall, chief investment strategist at CFRA. In contrast, Wall Street's nickname for a surging stock market is a bull market, because bulls charge, Stovall said.

The S&P 500, Wall Street's main barometer of health, slid 3.9%. It's 21.8% below its record set early this year and now in a bear market.

The Dow industrials sank 2.8% and the tech-heavy Nasdaq composite, which already was in a bear market, tumbled 4.7%.

The most recent bear market for the S&P 500 ran from February 19, 2020 through March 23, 2020. The index fell 34% in that one-month period, the shortest bear market ever.

Investors are worried

Market enemy No. 1 is interest rates, which are rising quickly as a result of the high inflation battering the economy. Low rates act like steroids for stocks and other investments, and Wall Street is now going through withdrawal.

The Federal Reserve has made an aggressive pivot away from propping up financial markets and the economy with record-low rates and is focused on fighting inflation. The central bank has already raised its key short-term interest rate from its record low near zero, which had encouraged investors to move their money into riskier assets like stocks or cryptocurrencies to get better returns.

Last month, the Fed signaled additional rate increases of double the usual amount are likely in upcoming months. Consumer prices are at the highest level in four decades, and rose 8.6% in May compared with a year ago.

The moves by design will slow the economy by making it more expensive to borrow. The risk is the Fed could cause a recession if it raises rates too high or too quickly.

Russia's war in Ukraine has also put upward pressure on inflation by pushing up commodities prices. And worries about China's economy, the world's second largest, have added to the gloom.