As investors grow increasingly worried about inflation and higher interest rates, Wall Street has fallen into a bear market.
The US Federal Reserve bank has indicated that it will push up interest rates as it struggles to curb the highest rates of inflation the country has seen in decades. The uncertainty unleashed by Russia’s invasion of Ukraine and the slowdown of the Chinese economy has also resulted in declining stock prices in sectors from tech to car manufacturers. Increasingly volatile changes in the value of stocks have become more common.
The US last entered into bear market territory about two years ago. Aggressive action by the Federal Reserve throughout the pandemic kept stocks moving in an upward direction, but substantial losses in high-risk assets such as cryptocurrencies have damaged investor confidence. Near the end of 2021, Bitcoin was valued at nearly $68,000. As of Monday, that value had dropped to less than $23,000.
Here is more information about “bear markets”. ___
Why the term ‘bear market’?
A bear market is used to describe when a stock index such as the S&P 500 or the Dow Jones Industrial Average drop by 20 percent over a sustained period after a recent high.
Sam Stovall, a chief investment strategist at CFRA, told the Associated Press that the term “bear market” is used because bears hibernate, representing a market that has slowed down or ceased moving forward. The term “bull market” is used to describe the opposite: a market charging forward.
[embedded content]
In the US, the S&P 500 is seen as a vital indicator of Wall Street’s confidence, or lack thereof, in the market. That index fell nearly 4 percent on Monday, and is more than 20 percent below a record high that it reached earlier this year.
The Dow Jones sank by almost 3 percent on Monday, and the Nasdaq, which is composed largely of tech-related stocks, fell by nearly 5 percent.
The most recent bear market for the S&P 500 was also the shortest: between February 19, 2020, and March 23, 2020, the index dropped by nearly 35 percent.
Why are investors worried?
The primary cause of concern among investors is interest rates, which are ticking steadily upwards to combat high levels of inflation that are hammering the economy. If low rates tend to cause stocks to rise, higher rates can have the opposite effect.
The Federal Reserve, which was focused on propping up markets during the pandemic, has now zeroed in on combatting rising inflation. Record-low interest rates had made it easier for investors to shift money into less stable assets such as stocks and cryptocurrency, hoping for higher returns due to the riskier nature of the investment.
Those near-zero interest rates are now coming to an end. Last month, the Fed indicated that new rate increases are likely to occur in the next several months, and could be as much as double the normal increases. Consumer prices have risen nearly 9 percent from May of 2021 and are now about the highest levels in 40 years.
By making the cost of borrowing money more expensive, the rising rates will slow the economy. This can help curb inflation, but also comes with the risk of triggering a recession if rates go up too much or too quickly.
Rising commodities prices have also been pushed upward by Russia’s invasion of Ukraine, contributing to rising inflation. Concerns about China’s economy, the second-largest in the world, have also been the source of a worsening outlook from investors.
Avoiding a recession?
While the Fed will attempt to balance containing inflation with the need to avoid sparking an economic downturn, rising rates will likely push stocks down.
If it costs more to borrow money, consumers cannot buy as much stuff, and a company’s revenue can decrease. If stocks tend to keep up with profits, higher rates also make the elevated price of stocks less attractive. Less risky assets, such as bonds, also pay more due to the rising interest rate of the Fed.
Stock for big tech companies and other sectors that have done well during the pandemic entered the year priced high, and are now likely to see some of the steepest drops as interest rates rise. But retailers, sensing a shift in consumer behaviour, could also suffer.
[embedded content]
The bond market is also seeing signs of a possible recession. The yield on two-year Treasury bonds temporarily surpassed the yield of 10-year Treasury bonds. That reversal, with higher yields for more short-term bonds, has typically been seen as an indicator of a recession, although the timeline for such a downturn is less certain.
According to the AP, Ryan Detrick, chief market strategist at LPL Financial, has said that when a bear market and a recession come together, the stock decline average is usually about 35 percent. When the economy manages to avoid recession, that number drops to about 24 percent.
Should I sell now?
While many advisers have said that riding the lows and highs are part and parcel of investment, stocks tend to provide strong returns over the long term. However, for those in need of money now, or looking to lock in their losses, the answer is yes.
Discarding stocks could help prevent further losses, but comes with the risk of forfeiting potential future gains. Often, bear markets, or the days following them, see some of the best days for Wall Street. In the middle of the 2007-2009 bear market, for example, there were two separate days when the S&P 500 jumped forward by about 11 percent. During and after the 2020 bear market, which lasted approximately one month, there were also leaps of more than 9 percent.
However, advisers suggest further stock investments only if that money will not be needed for several years, giving the market time to rise out of the bear markets and regain its value, then going on to new record highs.
Even during the 10-year period following the eruption of the dot-com bubble, a particularly difficult period, stocks have often gone on to reach high points within a couple of years.
How long will the bear market last? How bad will it get?
Since World War II, bear markets have typically taken 13 months to go from high to low, and 27 months to regain their previous value. The S&P 500 index has decreased by an average of 33 percent during bear markets in the same period. The steepest downswing since World War II occurred in the bear market that lasted from 2007 to 2009, when the S&P 500 decreased by 57 percent.
[embedded content]
Historically, bear markets that occur rapidly tend to be shallower, and stocks have usually taken a little more than eight months to fall into a bear market. During times when the S&P has dropped by 20 percent more rapidly, the average loss for the index has been 28 percent.
The longest bear market ended in March 1942 after just more than five years, dropping the index by 60 percent.
When can I be sure the bear market has ended?
Investors look for consistent gains during a six-month period, and an increase of 20 percent from a low point. Following a low in March 2020, for example, it took stocks less than three weeks for stocks to go up by 20 percent.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
