Market Extra: Stocks crashing? No, but here’s why this bear market feels so painful — and what you can do about it.

by | Sep 24, 2022 | Stock Market

Hashtags about a stock-market crash may be trending on Twitter, but the selloff that has sent U.S. equities into a bear market has been relatively orderly, say market professionals. But it’s likely to get more volatile — and painful — before the market stabilizes.What’s happening? It was indeed a white-knuckle ride for investors Friday as the Dow Jones Industrial Average
plunged more than 800 points and the S&P 500 index
traded below its 2022 closing low from mid-June before trimming losses ahead of the bell. The Dow sank to its lowest close since November 2020, leaving it on the brink of joining the S&P 500 in a bear market.

Why is the stock market falling? Rising interest rates are the main culprit. The Federal Reserve is raising its benchmark interest rate in historically big increments — and plans to keep raising them — as it attempts to pull inflation back to its 2% target. As a result, Treasury yields have soared. That means investors can earn more than in the past by parking money in government paper, raising the opportunity cost of investing in riskier assets like stocks, corporate bonds, commodities or real estate. Historically low interest rates and ample liquidity provided by the Fed and other central banks in the wake of the 2008 financial crisis and the 2020 pandemic helped drive demand for riskier assets such as stocks. That unwinding is part of the reason why the selloff, which isn’t limited to stocks, feels so harsh, said Michael Arone, chief investment strategist for the SPDR business at State Street Global Advisors. “They’ve struggled with the idea that stocks are down, bonds are down, real estate is starting to suffer. From my viewpoint it’s the fact that interest rates are rising so rapidly, resulting in de …

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