"Year-to-date, the S&P 500 is already down 4%, marking its worst start to a year since 2016. And with the selling pressure seemingly accelerating every single day, the big question on Wall Street right now is whether this is a run-of-the-mill correction in a bull market or the start of something far more sinister."
Let’s face it, it has been an ugly start this year in the stock market, and many on Wall Street are thinking it to get even uglier. On Jan. 25 the S&P 500 index was almost 10% below its last high, which was reached on the first trading day of 2022. The Nasdaq-100 index was off nearly 15% from its peak in November, while the Russell 2000 Index of smaller companies was down almost 18% from its latest high.
The Nasdaq was looking at its worst January performance on record, dating back to the index’s inception in 1971.
Many agree that 2022 could see a crash, and our team in Grupo Internacional Mackendal cannot disagree, which means that we tend to be bearish, if you have any question and need guidance to invest this year, do not hesitate to contact us.
So here are 10 risk factors for a stock market crash in 2022:
Seasonal weakness.
Geopolitical event.
Oil shock.
Pandemic-caused economic lockdown.
Disappointing earnings.
Policy change.
Chinese economic slowdown.
Elevated inflation.
Big Tech regulation.
Crypto crash.
In 2020 we had the worst quarterly GDP decline in history, an unemployment rate that reached nearly 15%, and a pandemic that reshaped the way we live. Yet the U.S. stock market still finished with a gain of almost 20%. Predicting the market's reaction to the news is almost as difficult as predicting the news itself.
Two things that will be simple to grasp and that are very present in the news, are worth being talked about. Which does not mean that the other factors we have mentioned are less scary, but they will probably be the subject of other articles, so keep an eye on Grupo Internacional Mackendal news feed and our Facebook and Twitter page.
Inflation & Interest Rate
For decades, interest rates were relatively high because inflation was relatively high, and to that end, stock valuations were relatively low.
But in 2008, the Fed cut interest rates to zero to save the U.S. economy from collapse. What followed was 14 years of ultralow inflation that allowed ultralow interest rates to stay in place — and powered stock valuations to historically elevated levels..
In 2022, however, the story has changed. Inflation is red-hot for the first time since before 2008, meaning that the era of ultralow interest rates is — for the first time ever — threatened by runaway inflation. That’s problematic for stocks because they are still valued as if interest rates will remain lower for longer.
In a growing economy, moderate levels of inflation (say 2%) are perfectly normal. A growing business should have modest pricing power. However, the 6.8% increase in the Consumer Price Index for All Urban Consumers (CPI-U) in November represented a 39-year high in the United States.
When the price for goods and services rises rapidly, businesses and consumers usually aren't able to buy as much with their disposable income. Thus, high inflation has a tendency to slow growth, and encourages the nation's central bank (the Federal Reserve) to tighten its monetary policy, which I'll touch on next.
the Fed is going to wind down its QE program, and will likely raise rates by 25 basis points on a couple of occasions. As access to ultra-cheap capital becomes scarcer, the expectation is that overall economic growth will slow. This is concerning because growth stocks have powered the S&P 500 higher since 2009
Covid-19 Variants
Arguably the most glaring concern for Wall Street continues to be the coronavirus and its numerous variants.
The unpredictability of the spread and virulence of new COVID-19 strains means a return to normal is still potentially a ways off. With every country seemingly having its own approach to tackling the pandemic, supply chain issues and workflow disruptions could remain commonplace throughout the year.
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