A New Phase Has Begun for the Bear Market

March 13, 2023

minute read

Anxiety among investors is on the rise.

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It appeared at the beginning of this year that many investors were cautiously optimistic that the market downturn would soon be coming to an end, pushing the stock rally higher and higher.

The optimism of a few months ago has quickly waned. It seems that the recent banking crisis, which has led to the closure of three banks in the past week, has rapidly swept through the financial markets.

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Despite the fact that regulators came to the rescue, stock futures were unable to hold onto their gains from Sunday night. The optimism that investors had proved to be short-lived is now leading to an increase in investor fear.

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As we look at the state of the bond market, Treasury yields have fallen sharply during the early hours of Monday morning, continuing a downward trend from last week. It has been reported that the yield on the two-year Treasury is on track for its biggest three-day decline since October 1987, according to Dow Jones Market Data.

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Currently, there is a rush for bearish options on the options market because they are going to protect the investor against a bigger fall in stock prices. All U.S. stocks and exchange-traded funds saw a record amount of put options trading on Friday, with many analysts anticipating a spike in volatility over the next few days.

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Since the last peak of the S&P 500 two years ago, Dow Jones Market Data reports that it has been 298 trading days since the last peak, which means it has been the longest bear market since mid-2000, just when the dot-com bubble burst.

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As investors begin to come to terms with the idea that the Federal Reserve's rate hikes may have only just begun to ripple through markets and that the bear market, defined as a drop of 20% from highs, may persist longer than many hoped, it seems as if investors are beginning to accept that might not be the case. There is a possibility that other corners of the financial markets or the economy could also break in the months to come.