The stock market sell-off could be just getting started | CNN Business (2024)

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If you’re nervous about the stock market, you’ve got good reason to be: Central banks around the globe are losing the battle against inflation, and their response could plunge the global economy into a recession.

Step back: Last week, the Federal Reserve hiked interest rates by three-quarters of a percentage point — its biggest rate rise since 1994. The Bank of England increased its target rate, too, for the fifth time since December. And the Swiss central bank raised rates for the first time in 15 years.

They’re hardly done. The BOE conceded that inflation would spike near 11% in the fall, and the Fed just increased its inflation expectations for 2022 by a full percentage point. Although Fed Chair Jerome Powell said last week there’s still a chance the US economy could avoid recession, he conceded that Russia’s invasion of Ukraine, the ongoing pandemic and the supply chain and energy crunches “have raised the degree of difficulty and created great challenges … so we just don’t know.”

By pulling back stimulus and putting the monetary policy engine into full reverse, the Fed and other central banks have rattled investors. The US stock market has entered a bear market, and last week was Wall Street’s worst since March 2020: The S&P 500 tumbled nearly 6%, and the Dow plummeted 1,504 points, or about 5%.

Traders work, as Federal Reserve Chair Jerome Powell is seen delivering remarks on a screen on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 15, 2022. REUTERS/Brendan McDermid Brendan McDermid/Reuters Related article Stocks won't be satisfied until the Fed beats them into submission

US stocks have fallen 23% since hitting a record high January 3. Yet they could have plenty more room to fall — particularly if the efforts to gain control of runaway prices send the economy into a downturn.

“The Fed may be willing to push the economy into a recession to actually get inflation under control,” Anthony Saglimbene, global market strategist at Ameriprise, told me.

“I think that was probably in the back of investors’ minds, but it’s front and center now. Stocks are going to have a hard time until they figure out where that end point is for the Fed,” he added.

Recessions have not been kind to investors. Bear markets during recessions have historically been longer and deeper than bear markets that weren’t associated with economic downturns, notes Sam Stovall, chief investment strategist at CFRA Research. Since World War II, stocks have fallen 28% in bear markets without recessions — and 36% in those during recessions.

Downturns keep people from spending, hurting companies’ bottom lines. Although some Wall Street analysts have priced a recession into their earnings forecasts, stocks may still be a bit expensive if history is any guide. Based on historical price-to-earnings ratios during a recession, Stovall predicts the S&P 500 could bottom out at around 3,215, a decline from peak-to-trough of about 33%.

Even analysts who aren’t predicting quite that dramatic a decline believe stocks have room left to fall. Keith Lerner, chief market strategist for Truist Advisory Services, believes the S&P 500 will bottom out at around 3,400 – another 7.5% decline from Friday’s close.

“This would make an unbelievably brutal market feel that much worse,” said Lerner. “And, of course, markets could go beyond the average.”

A complicating factor: Central banks can’t rely on the tools they used in past recessions. Traditionally, the Fed and other central banks have cut rates and created money to buy up government debt to stimulate the economy. But even if inflation moderates in a recession, so many factors — commodity prices, fuel costs and supply chain problems – are beyond their control.

Lowering rates could make inflation worse, undoing whatever price moderation we might get from an economic downturn.

The good news, if you can call it that, is most economists who are predicting a recession expect a much shallower downturn than the collapse of the early ’80s. And stocks may have gotten so beaten up by the end of the year that any sign of moderating inflation or hints that the Fed may be easing up on rate hikes could juice the market again.

“One of the best things going for stocks right now is, given depressed sentiment, a little good news could go a long way,” said Truist’s Lerner, who notes bear markets tend to be far shorter than bull markets, and stocks usually bottom out several months before a recession ends. Another reason for optimism: In the year following a recession, the stock market returns 40% to investors on average.

China is buying loads of Russian oil

Despite the West’s efforts to punish the Kremlin for Russia’s invasion of Ukraine, it has been unable to keep President Vladimir Putin from selling the country’s oil and gas. The taps have remained open and the money keeps flowing into Moscow for a variety of reasons — a lack of alternate supplies, surging prices and willing buyers in other parts of the world.

The result: Russia’s economy, although in a deep recession, has largely avoided the crisis many in the West had hoped for.

This week, data from the Chinese General Administration of Customs illustrated how complicated cutting off Russia’s main lifeline has become. The administration reported China imported 55% more Russian oil last month than in May 2021, and Russia has unseated Saudi Arabia as China’s top oil supplier.

The Saudis had been China’s primary oil exporter for 19 straight months. But Russian crude has been heavily discounted as the country tries to find willing buyers, and China apparently couldn’t say no to bargain-basem*nt prices at a time of historically high energy costs. India has also been ramping up its imports of Russian oil.

Computer chips sit on an electronic motherboard used for industrial cryptocurrency mining at the CrytoSpace conference in Moscow, Russia, on Friday, Dec. 8, 2017. Andrey Rudakov/Bloomberg/Getty Images Related article Chipmakers brace for more trouble as Russia limits exports of rare gases

The European Union is phasing in an embargo of 90% of Russia’s oil, but it also has another card up its sleeve to limit the Kremlin’s options: A ban on insuring ships carrying Russian oil that would make it harder for Moscow to divert hundreds of thousands of barrels a day to India and China.

The European Union has announced that EU companies will be blocked from “insuring and financing the transport” of Russian oil to third-party countries after a transitional period of six months, my colleague Julia Horowitz reports. That could make it harder for Russia to find ships willing to load its crude.

It may not be so simple: The EU rule would probably raise crude prices even higher, which politically vulnerable Western politicians, including US President Joe Biden, aren’t so keen about.

Russia has also benefited from higher crude prices. If the insurance ban sends prices even higher, that could partially offset whatever pain the new rule could inflict.

Libyan oil struggles

As if the world needed more bad news about crude prices, Libya’s oil industry is in disarray, and it’s pumping less oil than it was a year ago even as the world is scrambling to find new energy sources.

Conflict in the country has led to some head-scratching and unreliable reports from the government about its oil production. Warring parties have used oil as leverage as they struggle for power, my colleague Nadeen Ebrahim reports. Rival governments have taken control of oil facilities and shut them several times.

That’s why the Libyan oil ministry said last week that production had shrunk to a near halt in June, to 100,000 barrels per day, down from 1.2 million bpd last year. This week, oil minister Mohamed Oun told CNN that some fields had come back online and production had climbed up to 800,000 barrels a day.

Still, that output remains less than last year and underscores how Libya’s oil sector is still in turmoil. No one is quite sure who’s in charge of the country’s crude supply.

“There are certain parties who seek to gain advantage by misrepresenting oil production figures,” said US ambassador to Libya, Richard Norland, calling last week’s oil ministry figures “inaccurate.”

“Actual production is significantly higher,” he said.

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The stock market sell-off could be just getting started | CNN Business (2024)


What happens when the stock market sells off? ›

During a market sell-off, stock prices tumble. That stock volatility might lead other investors to wonder whether they should sell as well, whether they should hold their current investments, or whether they should buy while stock prices are low.

What does it mean when a company sells off stock? ›

Summary. A selloff is a rapid and sustained sale of a large volume of securities, leading to a decline in its price. It may be caused by various factors, such as a report of declining earnings, the threat of new technologies, natural disasters, or an increase in the price of raw materials.

Why do people sell stocks when they are down? ›

If you have losses in some of your investments, you may want to consider selling them to take advantage of a strategy known as tax-loss harvesting. This approach allows you to save on your tax bill by offsetting income and capital gains with your losses.

Can you lose stock without selling? ›

Technically, yes. You can lose all your money in stocks or any other investment that has some degree of risk. However, this is rare. Even if you only hold one stock that does very poorly, you'll usually retain some residual value.

Should I pull out money from stock market? ›

Unlike the rapidly dwindling balance in your brokerage account, cash will still be in your pocket or in your bank account in the morning. However, while moving to cash might feel good mentally and help you avoid short-term stock market volatility, it is unlikely to be a wise move over the long term.

Where does money go when it leaves the stock market? ›

Just as a high number of buyers creates value, a high number of sellers erodes value. So even though it might feel like someone is taking your money when your stock declines, the cash is simply disappearing into thin air with the popularity of the stock.

What are the advantages of sell-offs? ›

Sell-offs offer better post-divestiture performance but may indicate underperforming assets. They can lead to improved long-term operating and stock return performance compared to spin-offs. Advantages of sell-out in sales planning include precise forecasting and customer focus.

What is an example of a business sell off? ›

An example would be Ford Motor Company selling off some of their businesses to focus on their core operations. Companies don't prefer to invest in subsidiaries or non-performing units during financially distressful times. It's much better to sell off the assets and save money to prevent insolvency.

Is Jeff Bezos selling Amazon shares? ›

Bezos has been aggressively selling Amazon stock since he disclosed a plan to sell up to 50 million shares in the company before Jan. 31, 2025.

What is the 3-5-7 rule in trading? ›

The 3–5–7 rule in trading is a risk management principle that suggests allocating a certain percentage of your trading capital to different trades based on their risk levels. Here's how it typically works: 3% Rule: This suggests risking no more than 3% of your trading capital on any single trade.

How to recover from stock loss? ›

Here's how you can bounce back.
  1. The markets can sometimes shift rapidly. ...
  2. Learn from your mistakes.
  3. Traders need to be able to recognize their strengths and weaknesses—and plan around them. ...
  4. Keep a trade log.
  5. On a related note, you can track your trading activity to pinpoint what has worked well and what hasn't in the past.

What is the best day to sell stocks? ›

If Monday may be the best day of the week to buy stocks, then Thursday or early Friday may be the best day to sell stock—before prices dip.

Can a stock go back up to zero? ›

Can a stock ever rebound after it has gone to zero? Yes, but unlikely. A more typical example is the corporate shell gets zeroed and a new company is vended [sold] into the shell (the legal entity that remains after the bankruptcy) and the company begins trading again.

Has a stock ever gone to zero? ›

The answer is no. While a stock's value can fall to zero, it cannot go negative. You will never owe money on a stock that drops to zero, though, sadly, you can lose more money than you initially invested.

Do you lose all your money if the stock market crashes? ›

Your portfolio might lose value, but losing value is different than losing money. When stock prices fall, your investments are not worth as much. But the market will inevitably rebound, and when that happens, stock prices will increase once again -- and your portfolio will regain the value it lost.

Does a stock go up when a company is sold? ›

When A Company Is Bought, What Happens to the Stock? The stock of the company that has been bought tends to rise since the acquiring company has likely paid a premium on its shares as a way to entice stockholders. However, there are some instances when the newly acquired company sees its shares fall on the merger news.

What happens when a stock gets sold? ›

If it's an “all-cash” deal, your shares will vanish from your portfolio upon closing, replaced by the specified cash value. Conversely, if it's an “all-stock” deal, your shares will be swapped for shares of the acquiring company.

Do you owe money if a stock goes negative? ›

No. A stock price can't go negative, or, that is, fall below zero. So an investor does not owe anyone money. They will, however, lose whatever money they invested in the stock if the stock falls to zero.

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