U.S. stocks ended a volatile session little changed on Friday, but still logged steep weekly losses. The S&P 500 posted its longest weekly losing streak since the dot-com bubble burst, as concerns over tighter monetary policy and the resilience of the economy and corporate profits in the face of inflation resurged.

The blue-chip index closed out a choppy session higher by just 0.01% to settle at 3,901.36. This brought the index lower by 18.7% compared to its record closing high of 4,796.56 from Jan. 3 – bringing the S&P 500 within striking distance of a bear market, defined once an index closes at least 20% from a recent all-time closing high. On an intraday basis, the S&P 500 was down by as much as 20.6% compared to its Jan. 3 record closing high. The S&P 500 also posted a seventh consecutive weekly loss in its longest losing streak since 2001.

The other major indexes also ended little changed on Friday but lower for the week. The Dow Jones Industrial Average rose by just 0.03%, or 8.77 points, to settle at 31,261.90 and log an eighth straight weekly loss. The Nasdaq Composite fell 0.3% to close at 11,354.62. Treasury yields sank, with the yield on the benchmark 10-year note falling below 2.8%, while U.S. crude oil prices edged up to more than $112 per barrel.

The latest bout of stock volatility came in the wake of weaker-than-expected earnings results and guidance from some of the major U.S. retailers earlier this week, which appeared to confirm fears that companies were having more difficulty passing on rising costs to consumers. Ross Stores (ROST) late Thursday became the latest major retailer to cut its full-year guidance, joining Walmart (WMT) and Target (TGT) in highlighting the impact inflation and supply chain disruptions have had on profitability. Walmart shares dropped 19.5% this week in the stock’s worst weekly performance on record.

“Unfortunately there’s no safe haven. When we see the news that came out of consumer discretionary and staples … that shows the struggles that companies have regardless of their size,” Eva Ados, ER Shares chief operating officer, told Yahoo Finance Live. “And ironically, these are the sectors, staples and consumer discretionary, that are viewed as safe havens in a bad economic market.”

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Nearing a bear market

The S&P 500 has come close to settling 20% below its recent record high, which would represent the index’s first bear market since the early days of the COVID-19 pandemic in 2020.

The Nasdaq Composite had already fallen into a bear market earlier this year, as traders rotated away from growth stocks amid expectations for higher interest rates from the Federal Reserve, which would pressure high-flying tech stocks’ valuations. As of Friday’s close, the Nasdaq Composite had fallen nearly 30% from its record high from Nov. 19, 2021. The Dow has fallen into a correction, or drop of at least 10% from a recent record high, but has not yet reached the threshold of a bear market.

Since World War II, there have been 12 formal bear markets for the S&P 500, and 17 including “near bear markets,” when the index fell more than 19%, according to LPL Financial Chief Market Strategist Ryan Detrick. Of these, the average drop was about 29.6%, and lasted an average of 11.4 months.

The S&P 500’s latest slide has come amid escalating concerns over decades-high rates of inflation, tighter monetary policy from the Federal Reserve, geopolitical turmoil in Ukraine, and renewed virus-related restrictions in China. And given this confluence of concerns, discussions about the probability of a recession in the U.S. have also increased. While it’s up to the National Bureau of Economic Research (NBER) to formally call a recession, one is usually considered after two consecutive quarters of negative GDP (gross domestic product) growth. The U.S. economy already contracted at a 1.4% annualized rate in the first three months of this year.

“Breaking down bear markets with recession and without recessions shows an interesting development. Should the economy be in a recession, the bear markets get worse, down 34.8% on average and lasting nearly 15 months,” Detrick wrote in a note. “Should the economy avoid a recession, the bear market bottoms at 23.8% and lasts just over seven months on average.”

Recession risks

While the S&P 500’s recent declines reflect souring investor sentiment given the uncertain economic backdrop, a slide into bear market does not guarantee a recession. The stock market’s worsening losses, however, have shown investors are increasingly expecting a downturn.

“Historically, the S&P 500 has fallen an average of 29% around recession (median of 24%),” Keith Lerner, co-chief investment officer and chief market strategist at Truist Advisory Services, wrote in a note early Friday. “With the S&P 500 currently showing a peak-to-trough decline of almost 19% [as of Thursday’s close], the market is effectively already pricing in a 60%-70% chance of recession based on the average and median.”

Strategists at other major firms have also underscored that the S&P 500 has been pricing in an increasing probability of a recession.

“A recession is not inevitable, but clients constantly ask what to expect from equities in the event of a recession,” David Kostin, Goldman Sachs chief U.S. equity strategist, wrote in a note this week. “Our economists estimate a 35% probability that the U.S. economy will enter a recession during the next two years and believe the yield curve is pricing a similar likelihood of a contraction. Rotations within the U.S. equity market indicate that investors are pricing elevated odds of a downturn compared with the strength of recent economic data.”

Lerner also noted that based on the average and median declines of the S&P 500 around recessions since World War II, the index could drop this time to as low as between 3,400 and 3,650.

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

But once a bottom has been put in during a recession, returns tend to be marked. Lerner noted that the average one-year forward return for stocks off a low around a recession is 40%.

“Said another way, even if stocks went down to 3,400, using the average rebound, stocks would be near 4,800,” Lerner said. “The other thing to remember is stocks tend to bottom several months before a recession is over and often when we hit peak pessimism. This happens when investors think to themselves, ‘I can’t think of one reason for the markets to go up.’ All the headlines are negative.”

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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