All things considered, 2021 has been pretty kind to US investors. A few wobbles along the way, many companies have recovered well from the coronavirus market crash of March 2020. Will Apple $Apple(AAPL)$continue to rise? Or how far low will Tesla $Tesla Motors(TSLA)$ go??? Are we heading for a recession??? Growth stocks $NASDAQ-100 Index ETF(QQQ)$ getting hammered?!
That said, I’m keeping my tin hat very much to hand. Here are 4 potential reasons why stocks could tumble once more in 2022.
The omicron variant of COVID-19 has left the stock market in turmoil in recent weeks. While early data appears to show that the variant is less lethal, the prospect of borders shutting and restrictions going back in place has sent portions of the market into a tailspin.
Is another lockdown on the way? Never say never. Regardless of the restrictions that might be introduced, however, none of this will be good news for the vast majority of businesses.
Inflation going hard
Yesterday, it was reported that inflation in the US had hit a 10-year high due to supply chain woes and lack of staff. None of this will be resolved overnight. The more costly raw materials are, the more businesses will attempt to pass this on to the consumer. And the more expensive things get, the less demand there is, even if wages are going up. And when this happens, share prices don’t do well.
….and rising interest rates
The problem is that rates have been so low for so long, many of us have got used to them, including growth-oriented businesses. Being able to borrow money to fund, say, research and development has been almost too easy. The outlook may not be so good, especially if a company isn’t yet profitable. Cue extra pressure on share prices.
Rise of the Apes🐒
Meme stocks, cryptocurrencies, non-fungible tokens — they’ve all attracted insane amounts of cash in 2021. A lot of this has come from younger traders, keen to mimic the (apparent) riches of those posting on Reddit threads such as WallStBets.
I can’t help but think this won’t end well. A bit of speculation is inevitable, but the strategy of paying no attention to fundamentals and relying completely on someone else paying more for something than I did is risky in the extreme.
Would any of this matter?
In the short term, yes. It’s not easy to awaken to a sea of red in one’s portfolio or watch its value fall for days. I’ve been there.
However, I’m also confident that none of the above will stop me from investing. Stock market crashes are par for the course. To win this game, I need to buy quality shares when others are selling. Another big capitulation might offer me that opportunity. Make no mistake… inflation is coming.
Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question. No matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!
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