By Lewis Krauskopf

NEW YORK (Reuters) – The stock market’s brutal year neared a grim milestone as the S&P 500’s slide on Friday threatened to leave it in a bear market for the first time since March 2020, fueled by worries over sky high inflation, a hawkish Federal Reserve and future economic growth.

On an intraday basis, the benchmark dropped below 3837.248. This is a 20% drop from Jan. 3’s record-setting closing high. Should that hold until Friday’s close, it would confirm that the index is in a bear market – frequently defined as a drop of at least 20% from a closing high.

A bear market could mean that investors will experience more pain, as history has shown. The S&P 500 has fallen by an average of 32.7% in 13 bear markets since 1946, including a nearly 57% drop during the 2007-2009 bear market during the financial crisis, according to Sam Stovall, chief investment strategist at CFRA.

According to CFRA, it took the index about a year to hit its lowest point during bear markets. It then takes roughly two more years for it to recover its previous high. The return to breakeven has been different for each of the thirteen bear markets that have occurred since 1946. It can take as few as 3 months or as long as 69.

Graphic – S&P 500 bear markets since 1946: https://graphics.reuters.com/USA-STOCKS/BEAR/zjvqkmznwvx/chart.png

The S&P 500 surged some 114% from its March 2020 low as stocks benefited from emergency policies put in place to help stabilize the economy in the wake of the COVID-19 pandemic.

The Fed became far more hawkish at the beginning 2022 and indicated it would increase monetary policy in an even faster pace to curb rising inflation. Stocks and bonds have been affected by expectations that the Fed will increase rates further this year, having already increased them 75 basis points.

Jerome Powell, Fed Chairman has promised to raise rates to combat inflation. But Powell also believes that policymakers have the ability to lead the economy toward a “soft landing”.

Volatility has also been exacerbated by the conflict in Ukraine which has led to a spike in crude oil and other commodities prices.

Graphic – S&P 500 timeline in 2022: https://fingfx.thomsonreuters.com/gfx/mkt/jnvwezxjgvw/Pasted%20image%201653063479826.png

A few sectors of the stock exchange have not been affected. This year’s energy shares have rocketed along with the oil price, but defensive groups like utilities have performed better than the broader market.

Graphic – S&P 500 sectors since all-time high: https://graphics.reuters.com/USA-STOCKS/BEAR/znpnemwbdvl/chart.png

However, technology shares and other companies that are high growth have been hard hit. These stocks, high-flyers during the bull market of the last decade, are especially sensitive to higher yields. This can reduce the appeal of companies whose cash flow is weighted less in the future.

Some of the biggest of these companies, such as Tesla (NASDAQ:) and Facebook (NASDAQ:) owner Meta Platforms, are also heavily weighted in the S&P 500 index.

Graphic – Casualties in 2022 stock market: https://graphics.reuters.com/USA-STOCKS/BEAR/egpbkwajjvq/chart.png