If you started investing in mid-2020 or in 2021 – which many people did – you probably had a good time.Stocks soared after the market crashed at the start of the pandemic.Crypto also took off.The meme stock craze powered by GameStop and AMC was comically profitable for some, at least while the joke lasted.NFTs were pretty completely made up, but hey, they were worth a lot of money.And isn’t all the money simply made up?
The situation felt certain like a bubble, but it was a nice bubble to sit in, like many bubbles.It can feel like quite a party.It’s less fun when the bubble bursts… and that’s where we landed in 2022.
The line that kept rising suddenly couldn’t stop falling.
It has been a tough period for the economy in general.For stock market investors, major indices such as the S&P 500, the Dow Jones Industrial Average and the NASDAQ are poised to end the year in the red.Crypto winter is definitely here.The housing market is in trouble and mortgage rates, which have been low for years, are rising.Inflation is at its highest level in 40 years, cutting into recent wage increases.The Federal Reserve’s fight against inflation by raising interest rates threatens to strip workers of their jobs and push the country into recession.
Americans in general still have hundreds of billions of dollars in excess savings accumulated during the pandemic, but they are spending that money.
The whole thing about the Fed is that it needs to take out the punch bowl just as the party is about to start.There are those who argue that it’s been too long and everyone’s gotten too drunk, or that it’s moving too fast and many people are still stone cold sober, or that the punch bowl isn’t where the booze is at all.Be that as it may, it looks like the party is over for now.
It’s super easy to feel like a genius in a bull market
Stock market prices over the past decade have generally been pretty good.Although stocks plummeted as the pandemic hit, they bounced back quickly – the market received massive support from the Fed and many people were diving into day trading for the first time.
In some corners, it felt like investors couldn’t lose.The S&P gained 16 percent in 2020 and 27 percent in 2021.
But this year it has returned much of that gain.
That 2022 would be a tough year for stock market investors wasn’t necessarily surprising given the market’s gains in 2021, Sam Stovall, chief strategist at investment research firm CFRA Research, explained in an interview.“Every time the market goes up 20 percent or more, we see a decline of at least 5 to 10 percent, when the average is actually a correction of 10 to 15 percent.This time, unfortunately, it turned into a bear market,” he said, representing a 20 percent decline.That expected decline was exacerbated by a number of external factors that made matters worse.
“The Fed has waited too long to raise interest rates.
We did not see the supply disruption abate as quickly as many thought, and heading into this year the situation between Russia and Ukraine was not [yet] exploded,” Stovall added.Another factor is China’s continued tough stance on Covid, which has economic implications around the world.
Major technology stocks have returned to their feet after a pretty impressive run.Investor interest in some of the weirder stuff, from meme stocks to cryptocurrencies to NFTs, has waned, and with it their prices.Across the board, there weren’t many places for investors to hide – not even the normal bond market hideout was safe.
“This is the first time in decades that both the stock market and the bond market fell simultaneously.It caused a lot of investor anxiety this year because there was basically no place, not even gold,” said Jack Ablin, chief investment officer and founder of Cresset Capital.
(The narrative that “bitcoin is a good inflation hedge” also seems unconfirmed.)
It’s not necessarily a terrible thing that some assets whose past valuations weren’t entirely justifiable are returning to somewhat more realistic levels.Many people love their platoons, but the company was probably never worth $50 billion.And for investors still interested in those assets, lower prices could be a buying opportunity.“Look, think of stocks and the stock market like any other product.Do you want to buy steak if it costs $18 a pound or do you want to buy that same steak if it costs $10 a pound? Ablin said.
“If the price goes down, it actually turns out to be a better deal.”
Of course, there are no guarantees that the markets will not get worse before they get better.
The Fed is poised to continue raising rates in 2023, a maneuver not exactly favored by investors.Stovall said he doesn’t see 2023 as reflective of 2022, but that doesn’t necessarily mean we’ve bottomed out either.In October, he asked a group of financial advisors if they’d heard from their “bell ringer” clients — the people who want to get aggressive when the market is peaking and selling just when it’s bottomed out, to make the wrong move at exactly the right time.wrong place.
moment.They didn’t.
He told them, “Either you’re trying too hard to keep them aligned and so forth, or we haven’t really seen the capitulation that we usually see at the end of a bear market.”
It’s the economics of inflation and we just live in it
The main economic storyline of 2022 has been inflation.It’s high, it’s persistent, it’s annoying.It’s made everything else about the economy feel really bad, even if there’s plenty of good evidence to suggest there’s plenty of good going on as well.Wages have risen, jobs are plentiful, and consumers have kept their spending steady for most of the year.
Still, there is at least the risk of some dark clouds on the horizon.US retail sales fell in November, with declines in items such as furniture and motor vehicles.Inflation is bad, period.
The steps the Fed is taking to try to get it under control could also lead to more evil and make everything worse before it gets better.The interest on loans is getting more and more expensive.
People are putting more debt on their credit cards.If the Fed has its way, workers could eventually lose their jobs as the Fed has made it clear that it is pursuing a slowdown in the labor market.
“Despite the slowdown, the labor market remains extremely tight, with the unemployment rate near its 50-year low, job vacancies still very high and wage growth high,” Fed Chairman Jerome Powell said at a press conference in mid-December.noting that the US had added an average of 272,000 jobs per month over the past three months.“While job openings have fallen below their peak and the pace of job growth has slowed from earlier this year, the labor market remains unbalanced.”
“The drug may be worse than the disease,” said Ira Regmi, program manager for the Roosevelt Institute’s macroeconomic analysis program.They noted that this will also have a disproportionate impact.“Everything that happens in the economy is happening faster and on a larger scale for black and brown people.
They are the first to be fired, the last to be hired.”
The economic aid handed out by the government during the pandemic is now in the rearview mirror.Stimulation checks and the expanded money from the child tax credit have been spent.For those out of a job, unemployment insurance is back to how it used to be (i.e., a disaster).
That does not mean that the government does nothing about the economy.Lindsay Owens, executive director of the progressive think tank Groundwork Collective, noted that the Inflation Reduction Act, passed in mid-2022, is making significant investments in areas such as climate and healthcare.
“There’s a pretty significant amount of long-term investment that’s just started that we’ll see in years, if not decades,” she said.Still, people won’t feel that as quickly as a check that arrives in the mail.“Maybe a caveat is that the sugar high is over,” Owens said.“Supplement is over, but the scholarship fund is the same.”
The fun is over and it’s not clear if the next thing is good or a funeral
There are plenty of reasons to feel better financially about 2022 than about 2021.The wide availability of Covid-19 vaccines means the economy is back to normal in many ways.For example, many of the supply chain bottlenecks that plagued the 2021 holiday season have been resolved.
The job market has recovered and many workers have found an unprecedented level of power and influence.
Sure, it sucks if you’ve lost money in the markets this year, but in general the stock market tends to go up over time – really, staring at your 401(k) isn’t going to do you any good right now doing.It also sucks if you’ve lost money in crypto, which, you know, it’s not so clear whether it generally goes up or not over time, especially depending on the coin.Many market experts – and crypto folks – say these are times when some of the investments and businesses that were garbage in the first place are wiped out, which is generally not the worst thing in the world.They also say it’s good for new investors to learn that prices can fall, even if they learn the hard way.
I suppose if everyone decides that the cartoon jpeg monkeys probably aren’t worth hundreds of thousands of dollars, that’s probably fine.
Falling stock prices, high inflation and rising interest rates are no fun, but perhaps the reason it seems like the party is over isn’t necessarily the current situation.Instead, it may be the overarching uncertainty of what lies ahead.
It’s a little hard to feel woohoo about anything when there is a threat of economic downturn ahead.A recession is looming, which is dragging down the current mood regardless of one’s individual economic situation.
“2023 could be a very painful year,” Owens said.
At best, the Fed will provide a soft landing and bring inflation under control without disrupting the economy.At worst, the brakes are slammed too hard, leaving millions of people unemployed and causing unrest indefinitely.Wildcards remain – e.g.
Russia-Ukraine, China and Covid.Given what’s happened over the past three years, who could even guess what’s next? Markets are like people in that respect: clearly concerned about the situation.
The party has paused for a while, but it’s good to remember that the financial festivities probably won’t be over forever.
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