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US S&P 500 ‘bear market’: How did it happen, what will it mean? – Al Jazeera English

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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”.
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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.

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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.

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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.

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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.

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'Every dollar counts': Ontario's gas and fuel tax cut goes into effect – CBC.ca

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Ontario drivers experienced some relief from record-setting prices at the pump on Friday as the province’s gas tax cut came into effect.

The Ontario government cut the gas tax by 5.7 cents per litre until the end of the year, though Premier Doug Ford said he would consider an extension if inflation remains high.

Drivers noticed the impact Friday at gas stations in the Toronto-area, where prices dropped around 11 cents overnight to $1.93 — only partly attributable to the tax cut.

“Every dollar counts,” said Matthew Johnston as he filled up a cargo van at a downtown Toronto gas station. “This will actually help a bit.”

Gas prices in Toronto are up nearly 40 per cent since the start of the year, reaching a record high $2.15 per litre in early June before ending the month around $2.00 per litre.

Cut also applies to diesel

Johnston, who runs an upstart catering business and works at a winery, says the soaring price of gas paired with inflation has forced him to cut back on spending.

“I haven’t been able to go out or do anything anymore. It’s honestly just all gone to gas, rent — you know, just the cost of living,” he said.

He usually puts $60 in the tank to make his near-daily commute to the Niagara area. On Friday, he opted to try a $40-fill-up. 

The tax cut is expected to cost the province $645 million while it’s in effect. Analysts note Ford may face a tough decision in December when the measure expires and with prices likely to rise again before Christmas.

The legislation passed this spring will also cut fuel tax, which covers diesel, by 5.3 cents per litre until Dec. 31.

Hermain Kazmi called the tax cut a move in the right direction as he pumped gas into his car. He said high gas prices recently pushed him to use more public transit, but he expected to return to his previous driving habits if prices came down.

Kazmi was “100 per cent” in support of the government extending the tax cut into 2023, even expressing the hope it could lead to more financial relief.

“I don’t think a 10 cent drop would make a huge impact. It’s a good change but I think it needs to come down lower depending on how much inflation is and how salaries have not matched how inflation has gone up,” he said.

Price tied to increased demand, invasion of Ukraine

The soaring price of gas, a key driver of inflation, is tied to an increased demand for oil as the economy reopens after the COVID-19 pandemic. The situation has also been exacerbated by a global supply crunch caused in part by Russia’s invasion of Ukraine.

Ali Avali stopped to fill up his SUV on the way to a park outside Toronto, with his dog, an Alaskan Malamute, perched in the backseat.

“The only reason I drive is because of this guy. I take him out to do a bit of running in the country,” he said.

Once the loan is paid off on the SUV, Alavi said he plans to switch to an electric vehicle. He said he opposed a gas tax cut, suggesting that if prices continued to go up, more people may also be inclined to make the switch. 

“When I see gas prices going up, it doesn’t really piss me off,” he said. 

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LILLEY: Trudeau government tries to deny responsibility for Canada's air travel delays – Toronto Sun

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Our airports are a disaster and somehow the Trudeau government and their supporters think they can just say, “but it’s bad in other places too!”

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Is that really a good enough answer for Canadians?

It shouldn’t be.

The truth of the matter is that our delays have been going on since the end of March. Airports like Charles de Gaulle in Paris are experiencing problems now due to a strike.

On Thursday, Air Canada was the most delayed airline in the world with 74% of flights not leaving or arriving on time, according to Flight Aware. WestJet was the third most delayed airline globally with 59% of flights delayed.

The discount brand for both carriers, Jazz and WestJet Encore, weren’t far behind them on the list.

Is this due to problems globally or here at home?

You know the answer, but let me give you some more statistics. Canada had three airports in the list of the 20 most delayed airports in the world for departing flights on Thursday – Toronto, Montreal and Ottawa. We had five of the top 20 most delayed airports for arriving flights because Vancouver and Calgary made the list along with the other three.

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We don’t have the busiest airports in the world, just the most delayed, but somehow we’re expected to believe that government policies don’t have anything to do with this.

Not a single American airport is in the top 20 for having the most delays, but five Canadian airports are. Chinese airports like Shenzhen, Shanghai and Hangzhou dominate the list in large part because of that’s country’s COVID Zero policies.

“Our policies are so powerful that they’re impacting the entire world,” a senior Liberal messaged me after a recent column on how the Trudeau government’s policies are part of the problem.

They sent links to stories of airport delays in Amsterdam, England and elsewhere.

It’s all true that air travel is a problem elsewhere and staffing issues, including for airlines, is part of that problem, but so are government policies. And to deny that, or minimize it, is to ignore the problem.

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“On our end, we have done everything we can,” Transportation Minister Omar Alghabra said earlier this week.

He said the problems at airports are due to airlines scheduling, staffing issues, etc. Yet people are still needing to show up for their flights hours ahead of time to ensure they make it through security on time. Passengers are still being delayed and held back on planes once they land because the customs area is too busy and can’t hold any more people.

Those are issues the government is directly responsible for, not the airlines or airports.

The Trudeau government just extended a number of COVID travel measures until Sept. 30, including mandatory use of the ArriveCan app. According to customs officers, the app has increased the time it takes to process passengers by 400%.

Yet Alghabra wants you to think they have done all they can to alleviate the situation.

Other countries and other airports outside of Canada are experiencing problems but none as long or persistent as what we have been dealing with here in Canada. Instead of blaming passengers or airlines as Alghabra has done, he needs to work with all parties to find a solution.

That includes the government fixing the problematic areas they are responsible for at Canada’s airports.

blilley@postmedia.com

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95,000 GM vehicles unfinished in storage due to chip shortage – CBC News

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The global shortage of computer chips and other parts has forced General Motors to build 95,000 vehicles without certain components during the second quarter.

The Detroit automaker said in a regulatory filing Friday that most of the incomplete vehicles were built in June, and it expects most of them to be finished and sold to dealers before the end of the year.

The unsold vehicles amounted to 16 per cent of GM’s total sales from April through June. The company said Friday it sold more than 582,000 vehicles during the quarter, down more than 15 per cent from a year ago.

In a statement to CBC News, a spokesperson said only a small percentage of those vehicles, to be completed at a later date, were reserved for Canadian dealers.

The company reaffirmed its full-year net income guidance of $9.6 billion US to $11.2 billion with pretax earnings of $13 billion to $15 billion. For the first time, the company predicted it would make $2.3 billion to $2.6 billion before taxes in the second quarter. That fell short of analyst estimates of $3.97 billion, according to FactSet.

The chip shortage has vexed automakers around the globe since 2020, forcing many automakers to temporarily close factories and trim production. The shortage has limited the supply of new vehicles on dealer lots in the U.S. to around 1 million, when in normal years it’s about 4 million at any given time.

That has pushed prices to record levels and limited vehicle selection, but it’s also led to strong profits for most automakers.

In a prepared statement, GM said its North American production has been relatively stable since the third quarter of last year, but short-term parts disruptions are continuing.

“We are actively working with our suppliers to resolve issues as they arise to meet pent-up customer demand for our vehicles,” the statement said.

Most automakers have predicted minor improvement in the chip shortage during the first half of the year, with far better supplies from July through December.

GM shares fell slightly to $31.69 in Friday morning trading, after the filing was made public.

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