Stocks don’t want to stop falling. After a week of relief, it looks like the 2022 stock market crash is back. What’s wrong with the market? Check out the videos on Interactive Brokers, free resources to learn about investing https://mystockmarketbasics.com/interactivebrokersYT
The stock market had a couple good weeks to rally but now looks like it’s back to falling. Is it the beginning of a full-blown stock market crash or just another move to correct lower? Is it only about interest rates and Russia or is it something more this time? In this stock market live, I’ll share all the stock market news you need to see along with the trends and strategies that will help you invest now. I’ll also show you what is wrong with the market, why stock prices are falling and what really matters right now.
Stocks were looking like they were ready to recover last week before the late-week plunge, dropping more than 4.2% on Thursday and Friday alone. Stocks in the Nasdaq index have now had eight days with a loss of 2% or more out of just 29 in 2022 so far. That’s one-in-four days investors have had to sit through a tough market. Compare that with just 15 of the 252 trading days last year with drops of 2% or more (6%) and just six days in 2019 (2.4%) and it’s obvious that volatility is here to stay for a while.
The question is, is it a sign of a stock market crash to come or can stocks recover? For that, I still believe we can look to the underlying drivers of stocks, corporate profits, and what goes into them for a positive outlook. I’ll detail this later in the newsletter but if you look at those drivers of profits, the outlook is still good which would make the recent selloff and volatility an opportunity.
With investor sentiment turning negative and stocks wobbling, it’s important for long-term investors to remember what really drives stock prices. In the short-term, over months and even a one-year period, it’s true that investor sentiment is the major factor in stocks. Whether investors are optimistic and willing to pay high price-to-earnings multiples on stocks or more bearish and fearful will largely determine the direction of the market.
Over longer periods though, stock prices are a function of the earnings companies report. Stocks are an ownership interest in corporate profits so the value of that ownership is directly tied to how much a company makes long-term.
So when sentiment turns negative and investors worry about the value of their portfolios, it can be helpful to look at the drivers of those long-term earnings. This will either confirm what investors fear, that breaks in the underlying economic factors could cause earnings to fall…or it will soothe investor jitters, confirming that long-term earnings growth is still intact.
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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
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