Overall, shares of the New York Stock Exchange lost “20% of their value, which is the fourth largest stock loss in history since World War II,” CFRA chief strategist Sam Stovall summarized for AFP.
“It’s a Terrible Year”added this specialist in historical stock market statistics.
The 2022 rout on Wall Street comes behind the 2008 housing and financial crisis when the stock market fell 38.5%, then the crash of 1974 when it fell 29.7%, and finally the implosion of the internet bubble of 2002, when the market had shrunk by 23.4%.
It was stubborn US inflation, at a forty-year high and, in response, the drastic change in attitude of the US Central Bank (Fed) that signaled the end of the party for investors. US price inflation peaked at 9.1% in June, according to the CPI.
To counter it, the Fed began aggressively raising overnight interest rates in March, which rose from zero to 4.50% in a few months, which immediately cooled investments on the stock exchange.
More expensive money
Because with an increase in the cost of money, it is the investments of companies, especially those in the tech sector, that are affected, and therefore their future profits.
To date, the Nasdaq index, where popular tech stocks are concentrated, has dropped nearly 35% this year. The Dow Jones was down nearly 9% and the broader S&P 500 index, the most representative of the American market, fell 20%.
The emblematic stocks of the sector have drunk the cup, such as Tesla, down 65% in one year, but also Apple (-24% as of December 29) or Meta (-63%).
On paper, the fortunes of their billionaire founders have shrunk—by half for Facebook’s Mark Zuckerberg, or nearly half for Amazon’s Jeff Bezos.
At the same time, the dollar has strengthened to return to a level of parity with the euro not seen for 20 years.
As for the latest investment buzz, cryptocurrencies, they have suffered a major debacle. From $46,000 in March, bitcoin fell below $20,000 three months later and is now trading around $16,000.
Finished soon?
“The good news is that this year is almost over”quips Art Hogan, de B. Riley Wealth Management.
“The bad news is that 2023 could be bumpy, at least for the first few months”with the prospect of a recession in the US economy.
The historical precedents also have Sam Stovall (CFRA) say that “we risk going even lower because we have not yet seen the traditional capitulation of Wall Street” where the selling is accelerating.
In the usual cases of the end of a severe bear market, the VIX volatility index rises to around 40. But it is at 21 these days, the expert also underlines.
Furthermore, whenever inflation exceeds 6%, “it is accompanied by a recession with a bear market,” he predicts. He therefore believes that stock market indices “will return to lows again during the first half of 2023”.
Maris Ogg, portfolio manager at Tower Bridge Advisors, is more optimistic. “I think inflation will be under control, the Fed will be successful and 2023 will look more like a normal year”says the specialist.
Once the recession is over, if any, the market’s recovery could be swift, warns Sam Stovall, noting that the speed with which investors can take advantage of low stock prices “is astonishing.”
He therefore advises investors and stockbrokers not to be “stuck in cash when the market reverses.”
