S&P 500 hits bear market territory

The S&P 500 tumbled on Monday, pushing the benchmark index into bear market territory as Wall Street reacted to soaring inflation — and fears about how aggressive the Federal Reserve will need to be in order to arrest it.

Why it matters: The news underscores the deeply uncertain outlook for the stock market after more than a decade of astronomical growth.

• Spiking prices are overshadowing a Fed policy meeting scheduled this week, where the central bank is likely to hike interest rates by at least half a percentage point.

Driving the news: The S&P 500 closed down by nearly 4%, off by more than 21% from the high notched on Jan. 3. Blue-chip and technology stocks fared just as badly on Monday, with the Dow shedding almost 3%, and the Nasdaq plunging 4.7%.

• Bear markets, conventionally defined as a 20% decline from a high, are essentially a term of art that describes a gloomy market environment.
• For investors, the path of least resistance for share prices is lower as the outlook darkens.
• If the market closes at current levels, it means the S&P 500 has been in a bear market since it peaked in early January.

Big picture: Low inflation and interest rates that prevailed for over a decade — and the easy money policies they enabled from the Federal Reserve — have been instrumental in supporting share prices since the financial crisis and deep recession that began in 2008.

What's changed: Inflation. With prices rising at their fastest pace in over 40 years, the Fed has little ability and willingness to cut interest rates in the face of wobbly markets — as it has done repeatedly in recent years, most recently in 2019.

The bottom line: At least for the moment, the market will have to figure out how to live without the helpful support of the Fed.