What Is Happening With The Investment Market Now?
July 22, 2022 (Investorideas.com Newswire)
For many investors, the last several years have been very exciting. After plunging during the start of the Covid-19 pandemic, the stock market has been on a good run. In 2020, the S&P 500 increased by 16%, and by nearly 27% in 2021. Individual investors flocked to the market in droves, buying meme stocks like GameStop and AMC and reaping the benefits of a broad-based bull market. Some invested in cryptocurrencies such as bitcoin, which peaked at over $60,000 per coin last fall. From Peloton to Netflix to Amazon, tech companies seemed like safe bets for growth.
It was probably a bit easy to forget that bull markets don't run forever and that the seas can turn stormy chevalier. Markets, as the phrase goes, take the stairs up and the elevator down, and we're now on the elevator.
The Shrinking Markets
As of Tuesday's market open, the S&P 500, Dow Jones Industrial Average, and Nasdaq were all down 16 %, 11 %, and 24 %, respectively, from their highs at the start of the year. The Dow and Nasdaq saw their biggest single-day drops since 2020 last week. The S&P 500 index fell to its lowest level in a year this week. Many major and small names in the IT sector have been struggling. Bitcoin, which many proponents have long said is a type of digital gold that can be used as a hedge against market turmoil, has dropped below $32,000, less than half of where it peaked in November 2021 at about $69,000. The bond market has also suffered a major blow.
Stocks looked to be on the mend on Tuesday after a rocky few days, but there haven't been many bright spots in the recent picture.
"Correlations always move to one in market dislocations." According to Nick Colas, co-founder of DataTrek Research, "everything moves together." "When the storm is at its worst, there is no safe harbour."
Right now, we're in the midst of a major storm. It's also one that most investors should attempt to avoid because stocks don't go down indefinitely.
"While we are witnessing a broad-based sell-off in the market, and it appears that you cannot avoid it," stated Kristin Myers, editor-in-chief of the Balance, a finance website.
Anxiety On Wall Street And The Economy Right Now
There is no one explanation for why markets behave the way they do, why stocks rise and fall, or why investor mood shifts from day to day. With that in mind, perhaps the best explanation for what's happening right now is that there are several reasons for investors to be concerned, and they are.
Inflation is an issue in the United States and throughout the world, with the US inflation rate reaching 40-year highs. To battle inflation and bring prices back under control, the Federal Reserve has begun to raise interest rates and will soon begin to shrink its balance sheet. These steps are required, but they make Wall Street anxious.
Other concerns are affecting investor mood at the same time. The Russian conflict in Ukraine is still continuing, which is causing inflation, supply chain problems, and oil price volatility, as well as contributing to an overall sense of disquiet. Slowing development in China, as well as concerns about the impact of Covid outbreaks there, are causing concern.
"There are times in the market when everything appears to be pretty predictable, and the market steadily increases during those periods," Colas explained. "Then there are periods when things are really unknown, such as right now, and the range of possible outcomes is much wider." Market volatility is always higher when this happens."
What Climbs Up Must Sometimes Come Crashing Down
Many assets have risen significantly in value in recent months and years, sometimes to the point where they were trading at a higher price than they should have been.
According to Sam Stovall, chief financial strategist at CFRA Research, some market dips were to be expected as the year began. What goes up typically comes down for a while, at least a little bit, as a general rule. Since World War II, every time the S&P has risen by 20% or more in a year, investors have had to "digest" part of their gains early in the following year.
Higher interest rates have a detrimental impact on valuations and stock prices, and they might be especially damaging to the tech. Higher interest rates eat into future profits, and future profits are important for high-growth stocks.
The crypto industry has not been immune to market fluctuations, indicating that it is not as market-insulated as some investors would like to believe. "Even though the asset class is basically unrelated to stocks," Colas added, "those who purchase crypto tend to own stocks."
Some of the patterns that make particular companies appealing are reversing as life returns to a more normal condition compared to where it was earlier during the pandemic. People are reverting to a more traditional way of living, relying less on the internet for all aspects of their lives.
It's reasonable to be concerned about the financial future during times like this when all the CNBC chyrons are red and all the headlines are about market meltdowns. We aren't delivering investing advice, but the finest piece of life advice is arguably this: Don't freak out.
The stock market has historically risen, and nearly every expert would assure you that this will continue. Consider how concerned many people were about the markets in February and March 2020, when they were in free collapse, and what followed.
This might not be a terrible time to buy bitcoin cash (BCH) if you're young and have the stomach for it. Specifically, whether any stocks or assets you've been watching are now trading at a lower price than they were previously. Approach this as if everything is on sale.
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