The Past Six Months Have Been Brutal for Stocks. Here is What the Markets are Saying
The stock market has been terrible for the past few months. Wall Street hasn't been this bad since the 70s. In addition, inflation has eroded the first half of the year.
The Fed is responsible for de-escalating the situation by raising interest rates. However, after the Covid pandemic and the stock market lagging the curve, the economy took a hit, which is dangerous. In addition, Russia's attack on Ukraine is even worse.
Looking at commodity markets, the cryptocurrency, copper and cotton sectors all appear to be collapsing, not to mention the S&P 500's nearly 20% drop. Financial constraints are still being felt even as the Fed is trying to rein in inflation. Inflation excluding food and energy was 6.3 percent, according to the latest data.
In the words of Charles Bobrinskoy, vice chairman of Ariel Investments, "When interest rates go up, the math changes." With the high risk of a crash, investors aren't sure what to invest in. The source of inflation has changed the cost of buying cars, buying bonds, the value of Bitcoin, the prices of real estate and tech stocks.
Higher interest rates lead to higher borrowing costs. Therefore, investors protect their funds by staying away from risky assets. That explains why high-cap and tech stocks fell first.
If the Fed keeps raising rates, the situation could reverse and lead to a recession. Despite calls from policymakers and politicians for immediate change, the Fed's move clearly will take time. The Fed may succeed and control inflation, but if things get out of hand, all bets will be lost.
So what will calm the storm?
Every dark cloud has a silver lining. Based on history, if the Fed eases a little, allowing stocks to pause or raise rates by 50 or 25 basis points, depending on the situation, the stock market is expected to recover later this year.
Some sectors played a role during the crisis, such as oil, agricultural products and natural gas. However, the losses outweigh the gains.
In 1970, the S&P 500 rose 21% in the first half of the year and turned a profit of 26.5% in the second half. There is still a lot of work to be done for the stock market to recover. However, it is possible. Despite the screams, some enjoyed the victory. Russia's invasion of Ukraine led to a drop in gas and oil supplies. Demand for goods increases, causing prices to rise. Oil-related countries and companies returned about 40% as prices doubled.
As an investor, it's best to stay the course. Work with the current stock market and develop a long-term plan. Remember that investing eventually beats inflation. Therefore, it is wise to keep investing.