The past couple of years have been quite exciting for many investors. After the stock market plunged at the outset of the Covid-19 pandemic, it’s been on a pretty good run. The S&P 500 climbed by 16 percent in 2020 and nearly 27 percent in 2021. Hordes of individual investors rushed into trading, getting into meme stocks like GameStop and AMC and enjoying the perks of a pretty broad-based bull market. Some dipped into cryptocurrencies like bitcoin, which traded above $60,000 per coin for parts of last fall. Tech companies, from Peloton to Netflix to Amazon, felt like pretty sure bets for growth. The environment made it perhaps a little easy to forget that bull markets don’t last forever, and the waters can get choppy. As the saying goes, markets often take the stairs up and the elevator down, and we’re on the elevator right now. The S&P 500, Dow Jones Industrial Average, and the Nasdaq are now well below where they were at the start of the year, down 16 percent, 12 percent, and 26 percent, respectively, as of market open on Wednesday. Last week, the Dow and Nasdaq saw their worst single-day declines since 2020. This week, the S&P 500 hit its lowest level in a year. Many names big and small in the tech sector, in particular, have been struggling. Bitcoin, which many proponents have long argued is a form of digital gold that could serve as a hedge for market turmoil, briefly fell below $30,000 more than once this week, less than half of where it peaked at nearly $69,000 in November 2021. The bond market has been hit, too. Stocks fell late last week and on Monday before offering a modest reprieve on Tuesday. On Wednesday morning, after the release of the latest inflation numbers from the Bureau of Labor Statistics, stocks briefly slid before rebounding. The long and short of it is that markets are bouncy and on edge. Inflation remains near 40-year highs. Investors are anxious about what’s on the horizon and what policymakers are going to do about it. In the broader recent picture, there really haven’t been many bright spots. Chances are, if you look at your investments right now, you maybe aren’t feeling so great. “In market dislocations, correlations always go to one. Everything moves together,” said Nick Colas, co-founder of Data Trek Research. “There is never a safe haven when the storm is in full force.” We’re in the midst of quite a storm right now. It’s also one most investors should likely try to weather — stocks don’t go down forever. “While we are seeing this broad-based sell-off in the market, and it does seem like you cannot avoid it, this isn’t exactly a time for panic,” said Kristin Myers, editor-in-chief of the Balance, a finance website.
There’s a lot to be anxious about on Wall Street and the economy right now
There is never a singular answer for why markets do what they do, why stocks rise and fall, or why investor sentiment changes from one day to the next. With that in mind, maybe the best explanation of what’s going on right now is that there are a lot of reasons for investors to be freaked out, and so they are. Inflation is a problem in the United States and across the globe, with the US inflation rate near its highest levels in 40 years. In April, the Consumer Price Index, which measures what consumers pay for goods and services, was up 8.3 percent from the previous year and 0.3 percent for the month. The Federal Reserve has begun to raise interest rates and will soon begin to reduce its balance sheet to combat inflation and try to get prices back under control. Those measures may be necessary, but they’re also ones that make Wall Street nervous. “It always works; that’s the good news. The bad news is it always works because it creates a recession,” Colas said. Maybe not always. A recession in the near future isn’t a foregone conclusion, but it is likelier than it was, say, a year ago. Analysts at Goldman Sachs estimate there’s a 38 percent chance of the US economy entering a recession in the next 24 months. Deutsche Bank has forecast a recession as well, at first saying it believed it would be “mild” and then becoming a bit more pessimistic. The Federal Reserve, ideally, would be able to bring down inflation without causing a recession. In early May, Fed Chair Jay Powell declared that inflation is “much too high” and the central bank has a “good chance” of restoring price stability without causing a severe economic downturn. But it’s a tough needle to thread, Kristina Hooper, chief global market strategist at Invest, said in an email, and the tea leaves are hard to read. “Markets are clearly confused about what the Fed will do this year and just how aggressive it will get,” she said. There are other uncertainties plaguing investor sentiment concurrently. Russia’s war in Ukraine is ongoing, which could exacerbate inflation, supply chain issues, and oil price fluctuations and contributes to an overall sense of unrest. Slowed growth in China and concerns about the impact of Covid outbreaks there are, contributing to anxieties, too. “There are times in the market when things seem pretty predictable, and the market goes up gradually during those periods because tomorrow looks like today,” Colas said. “Then there are times when things are very uncertain, such as now, and the range of expected outcomes is higher. When that happens, market volatility is always higher.”
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