Stock market woes will persist in the second half of the year, but signs of hope will emerge for beleaguered investors, experts told ABC News of their predictions.
The stock market experienced a historic decline in the first half of the year, and many of the same economic threats still loom as inflation remains sky-high and the Federal Reserve moves aggressively to control rising prices by raising interest rates. loan costs. That means volatility will continue to hit markets in the coming months, experts told ABC News.
But the major indexes are likely to end 2022 higher than they are now as stock prices begin to promise a buying opportunity on the downside that outweighs the risk of another decline, experts said. As investors eventually jump off the bandwagon, the market will stabilize and begin to recover, they predicted.
In the first six months of the year, the S&P 500, a popular index to which many 401(k) accounts are tied, plunged 20.6%, marking its worst first-half performance since 1970. yet more, falling more than 28% during the same period; the Dow Jones industrial average fell more than 14%.
Lingering threats to the market include inflation, ongoing interest rate hikes, the Russian invasion of Ukraine and a possible recession. In the short term, these looming dangers will put downward pressure on the stock market, as market performance depends on the financial outlook of companies across the economy, experts say.
Ultimately, investors decide whether to buy or sell based on the likelihood that a particular business will succeed in the coming months and years, Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told ABC News.
“It all comes down to earnings,” Silverblatt said. “We’re buying stock based on how much we think the company will earn.”
Economic headwinds will make it difficult for companies to show investors the path to success, experts told ABC News.
A screen shows stock trading information on the floor of the New York Stock Exchange in New York, on June 27, 2022.
Brendan McDermid/Reuters
For example, to control an inflation rate last seen more than four decades ago, the Federal Reserve has undertaken an aggressive effort to raise borrowing costs, which in theory should slow the economy, reduce demand and reduce prices. But the focus will likely weigh on markets as investors anticipate poor business performance amid the economic slowdown, Silverblatt said.
“To stop inflation, the Fed has to create pain,” he said. “Nobody likes pain. If I get a splinter out of my finger, I’m still screaming and yelling while I’m doing it.”
At its most recent meeting last month, the Fed raised its benchmark interest rate by 0.75%, its biggest increase since 1994. The Federal Reserve has said it expects to continue raising rates d ‘interest in response to high inflation.
Experts also cited the threat posed by a potential recession, which many observers define by the shorthand metric of two consecutive quarters of decline in a nation’s inflation-adjusted gross domestic product, or GDP. A country’s GDP is the total value of the goods and services it produces.
If the U.S. were to enter a recession, it would likely further dampen business and consumer expectations, which could slow economic activity and affect markets, experts say.
“The market is suspicious of the earnings and growth outlook,” Harvey said.
But the market will reach a point where it has fallen enough that stock prices offer investors a buy that looks more like a bearish buying opportunity than a risk of further losses, experts said. At that point, the market will stabilize and begin to recover as traders jump back into stocks, they added.
Market analysts expect the stock market to reach that bottoming point before 2023. Past recoveries suggest that market performance can change suddenly, said Sam Stovall, chief market strategist at research firm CFRA .
“To know how often these dips occur, but then again, how quickly the market returns to equilibrium and beyond, will remind investors that it’s best to prepare a shopping list,” Stovall said. “Think more about buying than rescuing.”
But investors should consider their level of financial cushion and thus their ability to withstand short-term losses, said Silverblatt, the analyst at S&P Dow Jones Indices.
“Even if you think your stock is the best in the world, the new Apple or Amazon, in two years,” he said. “If you can’t live it because you can’t take the loss, you can’t play it.”
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