The key U.S. equities index the S&P 500 has now declined by just over 10% from its July 31 peak on fears that the U.S. economy is headed for a recession. One expert characterized the index’s drop as the first correction since the market bottomed in the fourth quarter of 2022. In contrast, the prices of safe haven assets like gold and bitcoin have been on the rise.
S&P 500 in Correction Territory
Mounting fears that the U.S. economy is headed for recession have now seen the key S&P 500 index drop by just over 10% from the July 31 peak of 4,577 points. Similarly, the Dow Jow Industrial Average ended the last week of October 2023 1.7% lower at just under 32,420 points. The fall of both indices came just days after it was reported that the yield on 10-year U.S. Treasury notes had crossed the 5% mark for the first time since 2007.
Several media reports have characterized the S&P 500 decline to 4,117 points as a movement to the correction territory. Experts on the U.S. economy like Jim Bianco of Bianco Research concur and believe the trend will likely continue until it becomes a “big deal.” Bianco, who has been warning about the world economy post-COVID, stated in a post X (formerly Twitter) that this is the first time the market has bottomed since Oct. 2022.
“The S&P 500 has now corrected 10% from its July 31 peak. This is the first such correction since the market bottomed on October 12, 2022. I’m surprised I see no screaming red headlines about this. It tells me it is not viewed as a big deal. Then … the decline will continue until it becomes a big deal,” the expert warned.
According to a CNBC report, all three major U.S. stock indices had incurred losses of between 2.1% and 2.6% in the week ending on Oct. 27. The report also attributes the losses to poor earnings reports by corporate giants like Ford and Chevron.
Yet, prior to the said correction, economists warned the rising yield on U.S. Treasury notes would ultimately make them more attractive than equities. When this happens it will spur a flight of capital from equities to U.S. Treasuries which, in turn, starves companies of vital investment funds and help raise the cost of borrowing.
