The markets in 2022 have gotten off to a rough start. The tech-heavy NASDAQ Composite is off to its worst start to the year since 2008 and has declined more than 15% from its peak last fall. The S&P 500 is beginning to follow suit, now down more than 10%, putting the broad index into correction territory. Sell-offs are never fun. But, they are a part of investing. Historically, stocks have offered tremendous growth opportunities. But with that growth comes volatility in pricing.
We’ve practically been surging ever since that early pandemic crash in March of 2020. So, it’s only natural for the market to give some back at some point. And, that point is right now.
We believe the tipping point was the more hawkish turn at the Federal Reserve. The Fed had been steadfast in providing support for the markets by injecting lots of money and keeping interest rates low. It helped drive unemployment below 4%, but it also caused inflation to spike. So, with that, Fed Chairman Jerome Powell said earlier this month, the more pressing problem is inflation. And that’s the reason for raising rates and tightening the money supply.
We believe markets are still trying to figure out exactly how far the Fed will go to curb inflation—or better yet, how far it’ll need to go.
Okay, so that’s pricing–the cosmetic exterior that we all see and feel every minute of every business day. What about the economic engine? How is it faring? We believe the overall economy is still in good shape. The Conference Board expects U.S. GDP growth to top 3% this year1. J.P. Morgan’s CEO Jamie Dimon said a couple weeks ago, the U.S. consumer balance sheet has never been stronger2. And, analysts on Wall St expect earnings on S&P 500 companies to grow by about 9% in 20223.
So, yes, sell-offs are not fun, but you’ll be better served as an investor by paying attention to what’s happening under the hood and not getting whipsawed by the constant fluctuation in prices.
-Mike Giordano
michael@wwmgreenville.com
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. Past performance is not indicative of future results. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The term “Nasdaq” is also used to refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange that includes the world’s foremost technology and biotech giants such as Apple, Alphabet (Google), Microsoft, Meta (formerly Facebook), Amazon, and Intel. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.
1https://www.conference-board.org/topics/us-leading-indicators/press/us-lei-jan-2022
2https://www.cnbc.com/2022/01/10/jamie-dimon-sees-the-best-economic-growth-in-decades-more-than-4-fed-rate-hikes-this-year.html
3https://www.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_011322A.pdf
