The Nasdaq Composite is approaching its first bear market in nearly 2 years. Here is the level to watch.
The Nasdaq Composite fell sharply on Wednesday as investors focused on the simmering conflict between Ukraine and Russia, dragging the tech-laden index into its first bear market in about two years.
set of facts
After recording a correction at the end of January, the Nasdaq Composite COMP,
sits around 17.4%, or 2.6 percentage points, below its record close on Nov. 19. If the index closes at or below 12,845.95, it will meet the commonly used definition of a bear market – a 20% drop from a recent high. A correction is defined as a 10% drop from a recent peak.
The Nasdaq has not fallen into a bear market since March 12, 2020, at the height of the COVID pandemic selloff.
However, the mood on Wall Street has deteriorated significantly amid rising inflation and expectations that the Federal Reserve will begin a series of interest rate hikes next month that will curb the bullish run in stocks for a while. a period of rates that were at or near 0%.
Read: A bear market is coming, and with it ways to make money not seen in 40 years, strategist says
The benchmark 10-year Treasury note TMUBMUSD10Y,
used to value everything from auto loans to mortgages has climbed about 0.50 percentage points year-to-date.
Higher yields were blamed for selling by many tech and other so-called growth stocks whose lofty valuations were based on earnings and cash flow expected in the distant future. Higher returns mean that the present value of these future flows is worth less.
Meanwhile, tensions in Eastern Europe could threaten to drive inflation even higher and provide more incentive for monetary policymakers to raise borrowing costs to cool the economy if commodity prices , including everything from wheat to crude oil, are rising.
To see: The S&P 500 records its first correction in 2 years as the Russian-Ukrainian conflict escalates. Here’s what history says is happening next to the US stock market benchmark
The bearish factors have combined to drag the Nasdaq Composite down significantly, but are also weighing on the Dow Jones Industrial Average DJIA,
and the broad S&P 500 SPX index,
which are significantly lower in 2022.