The American market is currently experiencing one of the worst periods in history.
Recession risks, sharp monetary tightening and record inflation are the three components of the downfall of the US market in the first six months of 2022.
Experts believe that the “bottom of the market” of stocks has not yet been reached
One of the worst markets since the 1930s.
By June 27, the S&P500 index, key for the US stock market, fell by 18% since the beginning of the year. For the US stock market, this is one of the worst results in history, although a slight increase in recent sessions has somewhat improved the overall picture.
Without this, the performance of the index would have been the worst since 1932, that is, since the Great Depression.
By the beginning of 2022, there were no shortcomings in the alarming forecasts – experts were talking about a superbubble and comparing the situation with the one that developed shortly before the collapse of the dot-com bubble in the early 2000s.
The rally in equities, fueled by direct payments to individuals, the Fed’s ultra-loose monetary policy, and a liquidity-filled quantitative easing program, continued for nearly two years.
So, in 2021, the broad market index rewrote all-time highs 70 times. From March 2020 to January 2022, the S&P 500 is up 114%. However, in early 2022, the rally began to fade.
At that time, inflation was fixed at its 40-year highs. The Fed, which had long viewed high inflation as a short-lived phenomenon, moved to scale down its stimulus programs and raise its base rate.
However, the regulator, which has kept the rate at near-zero levels for quite a long time, is now forced to act more quickly and decisively.
At the last two meetings, the Fed raised the rate by 0.5 and 0.75 percentage points – the regulator has not taken such drastic steps for decades.
At the end of the year, the rate may be at the level of 2008 – 3.25-3.5%. This caused investors to fear stagflation – a situation where an economic downturn is added to the rapid rise in prices.
Is a recession inevitable?
Fed chief Jerome Powell has already acknowledged that a “soft landing” for the US economy – that is, curbing inflation without sliding the economy into recession – will be a very difficult task.
At the last meeting in mid-June, the Fed sharply worsened its expectations for economic growth for the year (from 2.8% to 1.7%).
US Treasury Secretary Janet Yellen expects a slowdown in economic growth: “Because before this the economy grew very rapidly, it, like the labor market, recovered, we have reached full employment.” However, she does not consider a recession inevitable.
However, experts are increasingly worried about a possible downturn.
A Wall Street Journal poll of more than 50 economists gives a 44% chance that the US economy will enter recession.
As the publication notes, such levels of confidence in a recession usually occur when the economic downturn really comes.
Back in April, this probability was estimated at 28%. Among the reasons for the coming downturn, which economists name, are the increase in the Fed rate (which means more expensive loans), high inflation, problems in supply chains and high prices for raw materials caused by the situation in Ukraine.
At the same time, the Fed cannot influence the last two factors through monetary policy.
As expected, S&P Global, as the expected recession approaches for employees may slow down, and the unemployment culture.
“In such cases, the“ cure ”for the economy (in the form of a re-rate by the Fed. – Forbes) may be more severe than the disease.”
Despite the fact that while indicators are of great importance for the economy, “there are probably cracks in the foundation,” the authors of the S&P report said.
People are called to live in conditions of high prices and it is likely that US GDP will be in positive territory in 2022 (S&P analysts predict a growth of 2.4%), but expectations are expected to increase in 2023.
high price picks, a sharp rate hike that will depend on demand, and the situation in Ukraine and rising growth in China, which will exacerbate problems with valuation chains and price pressures, the likelihood that the economy will come out unscathed in 2023, S&P concludes.
What to expect before the end of the year?
Bearish sentiment in the market can be clearly seen in the dynamics of demand for shares from retail diseases, which in many ways are the main factors influencing nutrients.
So far, small investors have consistently “bought the bottom” and did not let the market fall. However, the situation has now changed.
JPMorgan calculates that they have had a massive sell-off since September 2020 for a significant share.
According to investment bank strategist Peng Cheng, it’s fair to say that “retail stocks have capitulated.”
Despite the collapse, historical data on the dynamics of the stock market may inspire investors with optimism.
Ned Davis Research estimates that in years when the S&P 500 index fell again in the first half of the year, the market grew in the second half of the year.
For example, in 1932, by mid-June, the index fell by 36.9%, and by the end of the year it rose by 34.6%. Optimism development and stock market analytics.
On average, their year-end expectations for the S&P 500, according to a June poll of Wall Street strategists by Bloomberg, are 4600 points (which is an increase of almost 20% from today’s levels).