About $1.3 trillion in market value disappeared in the past five days from the Wilshire 5000 index, which covers most publicly traded US stocks.
There are many bricks in Wall Street’s “wall of worry,” including sky-high consumer prices and the Federal Reserve’s vow to keep raising interest rates until inflation retreats closer to prepandemic levels. The war in Ukraine and harsh COVID lockdowns in China have stoked concerns about extended supply chain disruptions.
This week brought a fresh fear: the impact of inflation on corporate earnings, starting with retailers. Shares of Target lost a quarter of their value after the company said Wednesday it would sacrifice profits to keep prices low. Walmart’s stock has shed nearly 20 percent since Tuesday, when it reported that higher costs had hurt quarterly profits.
The Fed has lifted its benchmark federal funds rate by 0.75 percentage point since mid-March, to 1 percent. While rates are still historically low, the central bank’s tough anti-inflation stance — investors see rates of about 2.75 percent by the end of the year — has already had a significant impact.
The housing market is starting to flash signs of a slowdown amid a steep rise in mortgage rates. Tech stocks, which soared while the federal funds rate was near zero, have been beaten up badly, with the Nasdaq Composite index tumbling 29 percent from its record high in November.
The economy contracted in the first quarter, but that was considered something of a fluke driven by shrinking inventories and higher imports. The odds a recession happening over the next 12 months remain less than one in three, according to economists surveyed earlier this month by Bloomberg.
Still, investors find themselves in strange and scary territory. Bonds, a traditional haven during turbulent times, have also been losing ground. And there is little certainty about whether the Fed can truly tame inflation without causing a recession or leaving the economy stagnating while prices remain stubbornly high.
On Tuesday, central bank chairman Jerome Powell conceded it won’t be easy to bring consumer prices down without hindering hiring. That’s because any drop in consumer spending, which powers about two-thirds of the economy, would likely cause businesses to slow or pause expansion plans.
The national jobs data for April, released two weeks ago, were encouraging: payroll growth remained healthy and the unemployment rate was 3.6 percent, just a tick above its pre-COVID level.
The numbers for Massachusetts, which the state posted on Friday, weren’t so upbeat. Employers added 10,500 jobs last month, less than half of the 21,500 gained in March, and below the average of 18,500 new jobs over the previous six months.
The unemployment rate here dropped two-tenths of a point to 4.1 percent but remains stubbornly higher than the national rate of 3.6 percent.
It’s often said that the stock market isn’t the real economy. A bear market doesn’t necessarily mean a recession is imminent.
But keep your eyes on the labor market. That’s what really matters.
Larry Edelman can be reached at email@example.com. Follow him on Twitter @GlobeNewsEd.