Caroline Valetkevitch, Noel Randewich

NEW YORK/ SAN FRANCISCO – The’s Monday tumble put the most followed stock index in the world within reach of confirming that it has corrected for the first time since 2020’s global market crash caused by coronavirus pandemic.

Slammed by ongoing worries about inflation rates and by geopolitical fears related to Ukraine, the S&P 500 was last down 1.2%.

According to an often used definition, the index has fallen 9.5% since its record-setting Jan. 3 close. If it falls 10%, that would indicate it is correct.

(Graphic: Index losses of 10% or more from record highs, https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwjdgjvo/Pasted%20image%201643053005222.png)

Wall Street suffered in the recent months due to rising inflation expectations and the U.S. Federal Reserve’s growing expectations that monetary policy will be tightened faster than expected.

Monday’s downturn was due to those worries about the Fed and a NATO announcement that NATO had put forces on alert in preparation for any Russian invasion into Ukraine.

“Investors got scared, because no one knows what Jay Powell (Fed Chair) will do.” Is he going to hike 3x, 4x, 5x? Gary Bradshaw, Portfolio Manager at Hodges Capital Management Dallas, Texas, said.

The index of small-cap stocks rose about 1% Monday, bucking the Wall Street trend. However, it was almost 20% below its November record high. This follows several weeks of steadily declining declines. An index in bear markets would be a close that is 20% to 30% below the record-setting closing high.

The Nasdaq has confirmed last week its fourth correction from the start of the pandemic. Now, it is down approximately 15% since November’s record-setting close.

High-growth shares are subject to rising interest rates, which tends to adversely affect them because shareholders value them on the basis of their earnings in the future. Higher interest rates reduce the value and future potential earnings of companies that have high growth.

In a note, Steven DeSanctis (equity strategist at Jefferies) stated that small caps “price in the chance of a crisis,” in an article.

High-yield spreads and ’22 earnings estimates have not changed, but relative valuations remain as low as they were in the ’20.”

Following this month’s decline in the S&P 500, the index is trading at about 21 times expected earnings, still far above its 10-year average of about 17, according to Refinitiv data.

(Graphic: S&P 500 forward P/E is far above its historical average, https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnjkylvq/Pasted%20image%201643052964596.png)

Energy is the only one of 11 S&P 500 sector indexes with a gain year to date, up about 11%. The worst performers for 2022 were technology and consumer discretionary, which both fell about 13%.

(Graphic: S&P 500 component performance so far in 2022, https://fingfx.thomsonreuters.com/gfx/mkt/byprjmgnkpe/Pasted%20image%201643052901112.png)