Stocks have all been decreasing over the past couple of months. The year 2022 started rough for most industries, experiencing consistent devaluation in the stock market. Many factors have been attributed to this market depreciation, which poses the question: is the stock market on the edge of collapse?
Nasdaq has fallen 25% in the stock market from the beginning of this year. S&P 500 is also on a losing streak, down 16% below its all-time high after weeks of steady decline. Industries from tech to automobiles have suffered massive plummets in their stock prices, with no end to the ever-growing devaluation. Many investors wonder if these stocks will continue to fall or if there will soon be an upswing for the market?
Analysts are looking into the pandemic’s early months to determine why the stock market is declining holistically. Some think that the 2020 government stimulus allowed people to trade and buy stocks that they couldn’t before, leading to the rise of NFT ownership and high-risk investments. That brief stint with Robinhood also soared Gamestop stock to an unfathomable height, causing Wall Street and other investors to panic. The tumultuous climate of 2020 changed the market’s understanding of trading and investing. With the cost of food, fuel, and homes rising astronomically, those investors have pulled out or sold their stock shares to limit risk.
The CNN Business Fear & Greed Index, an index that measures seven different types of market experience, has indicated that the stock market is in a precarious position. Many look to this figure to showcase the stock market’s climate through an easy-to-comprehend visual. This visual wheel representing current investors’ sentiments can oscillate between extreme fear, neutral, and greed, depending on the index’s verdict. For the past few weeks, the index has shown that those involved in the market are mainly operating out of fear. Since many formidable companies are losing value in the stock market, investors are hurriedly pulling out due to fear of losing significant amounts of money.
Though people feel the worst with the current stock market, prices need to plunge further to hit rock bottom. The Federal Reserve continues its pursuit to fight inflation by raising interest rates, which has ultimately hindered stock prices. This government group is hellbent on continuing interest hikes to stabilize the inflation rate, without much care about how it affects the stock market. Historically, the Federal Reserve has allowed the stock prices to drop horrendously due to its own pursuits. Stock prices are expected to lower as the Federal Reserve continues to wrangle the inflation rate throughout 2022.
Though the stock market is currently tenuous and nerve-wracking, experts believe that acting out of panic is not the solution. Those with diversified portfolios, a term for investing in multiple companies as a risk-management strategy, shouldn’t overreact to the market decline. If investors pull out too soon from their stocks, they’ll miss out on the possible upswing that could occur in the summer or fall. Though it may seem like the stock market is crumbling, it has a long way to go before this decline can be classified as an unequivocal crash.