Another Wild Ride
Markets bucked and sold off again. 1
Should we be worried?
Not necessarily. These things happen pretty regularly, especially when headlines are negative.
In fact, you might recall that we kicked off 2022 with a big drop. 2
So, let’s talk about what’s behind the latest wild market ride.
(Scroll to the end if you want to skip right to the reassurance.)
What led to the selloff?
Primarily, economic worries. 1
Worries about new COVID-19 surges.
Worries about Ukraine.
Worries about the U.S. economy.
A report just came out showing the economy shrank by 1.4% in the first three months of 2022, surprising analysts who expected positive growth of 1.0%. 3
Though a single quarter of negative growth isn’t a recession, it’s a sign that inflation, the Ukraine conflict, and the pandemic hangover are weighing on the economy.
Realistically, some form of a slowdown was probably inevitable, given the massive economic recovery of 2021.
And, the news isn’t all gloom.
- This is a preliminary report, so we’ll see revisions later.
- Economists still believe the economy has plenty of room to grow, particularly given the strength of the job market, so the economy could rebound.
- Americans are continuing to spend. 4
The economy is still strong, but it’s showing cracks. We’re watching closely.
You can see a theme: markets are being driven by worry and fear.
Is the selling done?
That’s impossible to say.
Could we see a bigger correction or bear market?
Absolutely. That’s very possible.
Corrections and pullbacks happen very frequently.
Here’s a chart that shows intra-year dips in the S&P 500 alongside annual performance. (You’ve probably seen this chart before.)
Take a look at the red circles to see the market drops each year.
We’re dealing with a lot of uncertainty in 2022 and investors are feeling very cautious about the future.
However, that doesn’t mean that we should hit the panic button and exit our strategies.
Knee-jerk reactions to market turbulence can be VERY costly.
Thinking calm thoughts,
1 – https://www.cnbc.com/2022/04/25/stock-market-futures-open-to-close-news.html
2 – https://www.cnbc.com/2022/01/23/stock-market-futures-open-to-close-news.html
3 – https://www.cnbc.com/2022/04/28/us-q1-gdp-growth.html
4 – https://www.washingtonpost.com/business/2022/04/28/gdp-2022-q1-economy/
5 – https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-the-markets/mi-guide-to-the-markets-us.pdf
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– Warren Buffett