The last couple of years has been very exciting for investors of all kinds. Following the stock
market’s fall in the early days of the Covid-19 epidemic, it’s been enjoying a decent run. Is S&P
500 risen in value by sixteen percent during the year 2020 and almost 27 percent by 2021? A
plethora of individuals was rushing into trading, gaining access to popular stocks such as
GameStop or AMC, and taking advantage of the benefits of a fairly broad bull market. A few
jumped into cryptocurrency such as bitcoin, which traded at or above $60,000 per coin during
portions of the fall. Companies in the tech sector including Peloton from Netflix and Amazon, felt
like almost certain bets to grow.
The current economic climate made it somewhat easy to forget that bull markets won’t last
forever and that the waters could become turbulent. The saying goes that markets usually climb
the stairs, and take the elevator down. We’re currently in the elevator.
The S&P 500, Dow Jones Industrial Average, as well as the Nasdaq, are currently significantly
lower than they had been at beginning of the year. They were dropping 16 percent, 11 percent,
and 24 percent in the respective ranges as the market opened on Tuesday. This week it was the case that both the Dow as well as the Nasdaq witnessed their largest single-day losses since
the year 2000. This week also saw this week, the S&P 500 reached its lowest level in the past
year. Numerous names, both large and small within the tech industry specifically are struggling.
Bitcoin is a popular cryptocurrency that many advocates have long believed to be an alternative
to gold that can be used as a hedge against market volatility, dropped below $31,000, a fraction
of what it was around $60,000 in the month of November. The bond market has been down.
Stocks looked likely to be on the verge of rebounding on Tuesday following an up and down last
couple of days, however when you look at the overall situation, there haven’t been many shining
areas. It’s likely that if you take a look at your investments today, you might not be having a
“In market turmoil, there is always a correlation. Everything is connected,” said Nick Colas the
co-founder and founder of DataTrek Research. “There is never a safe haven when the storm is
in full force.”
We’re in an extreme storm at the moment. It’s one that all investors will likely attempt to weather.
Stocks will not 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 the
website for finance.
There’s plenty to be concerned about regarding Wall Street and the
economy at the moment.
There’s no one-size-fits-all reason for why markets behave the way they do, what makes stocks
fluctuate between highs and lows and why the mood of investors shifts from one week to the
following. With that in mind perhaps the most effective explanation for the present situation can
be that there are lots of reasons why investors need to be scared and that’s why they are.
It is known that inflation is a concern across this country as well as in the United States and
across the globe, with the US inflation rate reaching its highest in over 40 years. It is reported
that the Federal Reserve has begun to increase interest rates and is expected to soon begin the
process of cutting its budget to fight inflation and attempt to bring prices within control. These
measures could be needed but they’re also ones that can make Wall Street nervous.
“It always does the job and that’s the best part. The downside is that it works every time since it
causes a recession,” Colas said.
It’s possible that it’s but not necessarily. A recession that is expected is not an automatic
outcome, but it’s more likely than, for instance, one year ago. The analysts at Goldman Sachs
estimate that there’s a 38 percent probability of the US economy heading into a recession within
the coming 24 months. Deutsche Bank has forecast that there will be a recession too initially
was “mild” and then became slightly more optimistic.
The Federal Reserve, ideally, will be able to reduce inflation without causing an economic
recession. At the beginning of the month of May Fed Chairman Jay Powell declared that the
rate of inflation was ” much too high” and that the central bank has a “good chance” of restoring
the stability of prices without causing an economic recession that is severe. However, it’s a
difficult needle, Kristina Hooper who is a chief market strategist for the world at Invesco stated in
an email that the tea leaves aren’t easy to discern. “Markets are clearly confused about what the
Fed will do this year and just how aggressive it will get,” she wrote.
There are many other issues that are affecting investors’ sentiment simultaneously. The war
between Russia and Ukraine is in full swing which can exacerbate the issue of the supply chain,
inflation as well as fluctuations in oil prices and create general anxiety. Slowing development in
China and fears about the consequences of Covid outbreaks are making people nervous as
“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 stated. “Then there
are instances when the market is extremely uncertain, like today, and the probability of
outcomes is greater. When this happens the volatility of markets is always more pronounced.”
Sometimes, what’s going up can fall back or even quite a bit.
As noted at the top the assets have gone increasing by a significant amount in the past few
years and months, maybe to the point where they were being traded at a higher price than they
Sam Stovall, the chief investment strategist at CFRA Research, pointed out that, as we entered
the year certain fluctuations in the market could be anticipated. As a rule that goes up, it usually
will fall for a time and, at the very least, a less. Each time the S&P has been above 20 percent
or more during the time since World War II, investors have been “digesting” some of those gains
at the beginning of the new year, or, in other words, giving some of the gains back. “Stocks,
without question, were expensive,” Stovall declared.
The Nasdaq which tracks tech stocks, as well as The Russell 2000, which is comprised of
small-cap companies, have already entered the bear market territory, which means they’re down
20 percent from their most recent highs. Stovall advised that the S&P 500 may be just too.
Tech companies, in particular, have been particularly hard hit. For instance, the at-home fitness
firm Peloton which was once a favorite of the pandemic -has faced a lot of challenges in terms
of business. It is market capitalization which was once approximately $50 billion, has fallen to
less than $5 billion. Robinhood, a stock trading platform, just announced cuts, as did streaming
service Netflix whose stock price was down in April after it declared it had dropped subscribers
in its first quarter. Uber has stated that it is cutting costs and slowing hiring. Facebook the parent
of Meta Meta is planning to reduce hiring as well. The prices of the stock for Amazon, Google
parent Alphabet, and Meta are all falling by more than 20 percent in the past year.
The higher interest rates can negatively impact valuations and the price of stocks, and they can
be particularly damaging to tech. “Higher interest rates take a bite out of future profits, and for
high-growth stocks, those future profits are everything for them,” Myers declared.
The Wall Street Journal notes that in recent times the tech industry has been a reliable source
of expansion. However, it’s unclear whether this is just a temporary reshuffle and slowdown, or
the sign of a bigger slowdown that is more long-lasting in a high-risk sector. Perhaps it was too
the excitement about these businesses in the first place.
“Tech companies, many of them, especially consumer product companies got over-valued on
the venture side, and many of those companies that have since [gone public], if you will, have
mostly lost their valuations,” said Arjun Kapur an investor in venture capital who focuses on the
internet and consumer tech.
The crypto sector has not been immune to market fluctuations also — which suggests that it’s
perhaps not as protected from the market as many members of the market would wish to
believe. “The people who own crypto tend to own stocks, and that means that even if the asset
class is fundamentally unlinked to stocks, it is still linked through investor confidence in the
future,” Colas stated.
“Most asset classes other than cash are coming under pressure,” Hooper stated. “This includes
As the world returns to a normal routine in comparison to what it was at other times in the
outbreak certain trends that made certain companies appealing are beginning to reverse.
People are returning to their normal lives in the real world and are relying lesser on the internet
in all aspects of their life.
“We must be aware that as a people as a global community as an economy, as a market for
stocks, we’re in the beginning phases of getting out of the zombie apocalypse as well as the
shutdown and pandemic,” said Brian Belski the chief investment strategist of BMO Capital
Markets. “We’re still living by different rules, and we’re trying to unwind those different rules as
we inch toward this transitioning of normalcy.”
The situation could be bad for a few days however, they’re not going to last
for a long time.
In times like this, when all the CNBC Chirons are in red, and all the news headlines talk about
market crashes, it’s not unusual to feel anxious about your financial future. Vox isn’t engaged in
giving investment advice, but to offer some basic life suggestions, the best advice is likely to be
this Don’t panic.
In the past, the market has been rising and virtually every professional will say that’s likely to
happen in the future. Remember how scared many people were about the market during
February and March of 2020 when they were at a free fall, and about what transpired after that. If you’re young and have the guts to do it, this could be the perfect moment to invest, Myers
said, namely in the case of the assets or stocks that you’ve been keeping in your sights that are
currently trading at a lower level than they were previously. “Think of this as everything is on
sale,” she advised.
It is a common misconception that this isn’t the best opportunity to look over your 401(k)
however, it could be a good reminder to be monitoring it more frequently. Myers recommends
checking it once every quarter as an appropriate amount of time to check in on what’s
happening and to reevaluate. “It doesn’t mean that you need to make a lot of changes, but
maybe it’s time for you to move around your assets a little bit,” she explained. Moving assets
around don’t mean you’ll have to cash out.
If you’re nearing retirement, perhaps your portfolio has been shifting away from more risky
investments, like stocks, and moving towards something more stable. If it hasn’t it might be a
good time to contemplate doing so.
A bigger picture is ideal: investing is a long-term game that you ought to be in a position to win.
“I think investors need to remind themselves that market declines are pretty common,” Stovall
stated. But that doesn’t mean that with time, markets won’t recover. “If you invest in gambling I’d
like to know which casino offers the gambler 80 times out of the day. In 80% of all years prior to
World War II, the S&P 500 has posted a positive total return over the course of 12 months.”