It’s Officially a Bear Market

On Monday, the latest S&P 500 correction morphed into a bear market when the index closed down more than 20.0%—specifically 21.8%—below its record-high close on January 3, 2022.

Over this period, the S&P 500 forward P/E plunged 26.6% from 21.4 to 15.7 even as forward earnings (i.e., the time-weighted average of analysts’ earnings estimates for 2022 and 2023) continued rising to new record highs. Investors lost confidence in those projections as they fretted that persistent inflation would force the Fed to raise interest rates to levels that might cause a recession, which would depress earnings. Persistent inflation meant that the Fed Put was kaput, and there is no upside in fighting the Fed when it is fighting inflation.