Will the stock market crash again in 2022? This question has both experts and casual investors wringing their hands as they watch the current performance equities are exhibiting.
News reports have been grave. On February 22, 2022, the Dow fell by 483 points, and at one point, the 30-stock average had fallen by roughly 700 points. The S&P 500 closed in corrections territory, while the Nasdaq experienced its fourth consecutive negative session.
These developments are troubling, but what do they mean for you and your portfolio? Let’s examine the warning signs of a market crash and what you can do to stay the course.
Will Stock Market Crash Again? Warning Signs
The current stock market volatility stems from several different causes, both foreign and domestic. Is the market going to crash again? Here are the reasons why many experts are concerned:
Ukraine Crisis Continues to Escalate
Tensions between Russia and Ukraine are reaching a fevered pitch, with diplomatic possibilities quickly evaporating. The U.S. and its allies have already levied sanctions against Russia, but additional military measures may soon prove necessary.
Is the stock market going to crash again if we go to war? Military conflict has always had a destabilizing effect on the stock market, and the Ukraine situation is proving to be no exception. Should tensions escalate into actual US military action, we can expect the market to take a further downturn in the foreseeable future.
Increasing Rates of Inflation
The Consumer Price Index revealed that January saw prices rise by 7.5%, the highest increase since 1982.
Inflation diminishes consumer confidence, reduces spending power, and weakens the ability of companies to experience economic growth. As a result, inflation leads to a great deal of market volatility and, in many cases, can cause even successful companies to see a pronounced drop in the value of their shares.
Rising Interest Rates
The Federal Reserve is expected to raise interest rates multiple times in the coming year to combat this rising inflation. For both businesses and consumers, this increase in interest rates means that borrowing costs will rise.
Rising interest rates impact the stock market in two distinct ways. First, climbing interest rates will invariably slow business growth, making it harder for companies to secure funding to scale their operations, which in turn means that prospective investors may be less enthusiastic about a particular company.
Secondly, rising interest rates make it harder for consumers to obtain mortgages and other loans, and it can also stifle the average investor’s ability to sink their money into the stock market.
Some investors may prefer to opt for other assets such as bonds out of concern that they can’t afford to invest in the market.
Supply Chain Issues
The global economy continues to see massive disruption in the supply chain, resulting in empty shelves and a sharp drop in consumer confidence both in the U.S. and around the world. A lack of computer chips continues to disrupt the automotive and tech industries, and there doesn’t seem to be an end in sight.
With supply chain issues continuing into 2022, it’s unlikely that consumer spending will see a significant rebound. Will the stock market crash again due to this fact alone? It’s hardly certain, but at the very least, companies won’t see the kinds of profits they may have hoped for as we emerge from the pandemic.
Labor Disruption
The U.S. Bureau of Labor Statistics reported that 4 million Americans quit their jobs in 2021. The “Great Resignation,” as it came to be called, represented an opportunity for underemployed workers to leave their workplaces in search of greener pastures.
This mass exodus left many HR departments and CEOs scrambling to find a solution. In some cases, their policies and even benefits had to shift in order to retain workers or attract new ones. No matter how you slice it, it’s hardly been business-as-usual for American corporations, which has measurable effects on profits and success.
Lingering COVID Concerns
Even though the public policy is rapidly shifting, the coronavirus continues to be a lingering concern among American workers and consumers. This concern has impacted the travel and dining industries, both of which are just now beginning to rebound from the 2020 quarantines.
Will the stock market crash again if we experience another variant? It’s actually likely that we’ve rounded the curve and are beginning to fully emerge from this global nightmare. But that doesn’t mean that lingering fears might not drive consumer spending in the short term, which can have a negative impact on the stock market.
Bottom Line: Will the Stock Market Crash Again?
So what’s the bottom line? Is the stock market going to crash again? After all, the trends above tend not to be isolated incidents but seem to be working together to drag down investor confidence as well as corporate performance.
Without a crystal ball, the future is impossible to predict. But the global and domestic concerns are not nominal. It could be that we’re about to experience some economic turbulence in the immediate future, and it’s important to be prepared.
What to Do if the Stock Market Crashes
You’ve heard the old saying: “plan for the best, but prepare for the worst?” That’s the key task at this pivotal moment. Is the market going to crash again? Even if not, we’re likely in for a rough patch, and these tips might help you weather the storm.
Stay the Course
Volatile stock prices might leave you eyeing your portfolio with worry. Is now the time to jettison those underperforming stocks? Probably not.
Timing is everything, and even the experts get it wrong sometimes. According to Louis Harvey, president of the stock analysis group Dalbar Inc., “research consistently shows that the average investor has displayed a strong tendency to sell at just the wrong time whenever there’s a lot of sudden market volatility.”
Instead, play the long game. Aim for future returns, and choose to see the present market events as a blip on the radar screen.
Diversify, Diversify, Diversify
Having a diverse investment portfolio can protect you against sharp downturns in particular sectors. For example, if your investments in tech should suddenly plummet, you still have investments in healthcare or energy stocks to offset these losses.
Will the stock market crash again? It’s not certain, but a diverse portfolio can ensure that you cast a wide net and avoid the increased risk of putting all of your eggs in the same basket.
Talk to a Financial Advisor
You don’t have to sit on your hands, of course. Talking to a trusted financial advisor (or getting input from your favorite stock research resource!) can help you make wise decisions about your portfolio, as well as your financial future.
Take Advantage of Discounted Stocks
If there’s a silver lining to the current state of the market, it’s that investors might be able to find some “bargain” stocks when and if prices should drop. For example, you might be able to snag a high-performing stock that’s seeing a temporary downturn and then reap the rewards when the market restabilizes.
Will Stock Market Crash Again? Get Help from the Experts
Everyone is asking the same question right now: “Is the market going to crash again?” — and in reality, no one knows the answer.
However, it’s possible to have the right tools to get the most from your stock portfolio, regardless of what the market brings. Sign up today to become a Gorilla Trades member, and you’ll have access to the latest news and resources that can help you navigate a rapidly-shifting market.