What History Tells Us about How Far the Stock Market Could Fall
The COVID-19 pandemic resulted in widespread business closures, which created supply chain problems by disrupting workflows across the manufacturing and logistics industries. At the same time, the U.S. government doled out trillions of dollars in stimulus payments in an effort to fend off a prolonged recession, and the Federal Reserve kept rates low and spent trillions of dollars buying up bonds for the same purpose.
On the front end of the pandemic, stimulus payments and loose monetary policy allowed the economy to rebound quickly. But on the back end, the same factors have sent prices soaring, and Russia's invasion of Ukraine has amplified the problem by making oil more expensive. As a result, inflation has now exceeded the 2% target set by the Federal Reserve for 16 consecutive quarters.
That series of unfortunate events has conspired to tank the stock market. With the possibility of a recession looming, some investors have sold stocks to hedge against a potential economic downturn. That domino effect drove the S&P 500 down into bear market territory in June, and the benchmark index is currently 19% off its high. But inflation hit a fresh 40-year high of 9.1% in June, signaling that things may get worse.
Source Fool.com
