Bearish market sentiments have continued to dominate top indices all over the world. The current direction taken by the markets is way off from the predictions and massive gains the S&P 500 and the Dow Jones picked up in 2021.
Measures put forward by the government to support different industrial sectors were the reasons for the double digits growths posted in some parts of 2021 by S&P and the Dow Jones. Crypto stocks also picked up and registered record highs never seen before, pushing more people to learn how to trade Bitcoin and take new positions in PrimeXBT and many other trading platforms.
In November 2021, Bitcoin registered a high of over $65K and Ethereum a high of over $4K. The positive turnaround in the markets created speculations that 2022 will see those stocks and other assets register even higher records. However, the speculations and the predictions were off the mark in the first quarter of 2022.
Why Have Stocks Underperformed In 2022
As of June 2022, many markets in the developed world registered disappointing gains, with some already showing bearish trends.
Crypto markets were in a bearish trend already. Bitcoin, which once was valued at over $65K per unit, had dropped to below $40k—representing more than a 20 percent fall.
Small surges in May could not hide that the overall financial climate was not sound or had the right conditions to push the markets to a bull momentum.
In the US, top indices had shown signs of going into a bearish condition as early as January. The S&P 500 had shed about 19 percent from its peak at the end of January. However, when looking at the intraday prices, the percentage loss rose to about 21 percent—meaning a slump that pushes it to the bearish territory.
What Makes The Value of Assets Tank?
Uncertainty is the principal reason that has driven down the prices of the majority of shares. At the top is inflation, which is quickly driving up the value of goods and services. Higher prices are not any good for consumer spending—a matter that dampens growth in many sectors.
While inflation is high, volatility is also high. Many investors holding volatile instruments are dumping them quickly to enter a buying frenzy of more stable assets.
The risk of higher interest rates from central banks also played out as an essential factor to dampen investor mood in holding risky assets. In addition, high interest increases the price of running a business, making investors lose out on dividend payouts to cover the additional costs.
Is There a Risk of a Recession
Through an email, the Tesla boss, Elon Musk, warned about a growing risk of inflation. In the same email, the CEO suggested a 10 percent job cut in the Tesla workforce to protect the company’s finances in case of a recession. The email pushed Tesla stocks to lose about 9 percent.
Higher inflation, sparked by increased demand for goods and services, is pushing many economies to the brink of a recession.
The auto industry is one most affected by Covid-19. The period led to a disruption in the supply of goods and services that included electronic chips, effective in car manufacturing.
Uber and Lift, in the same industry as Tesla, have indicated plans to cut back on hiring. In addition, Caravan Inc. has also issued statements regarding its plans to remove 12 percent of its workforce.
When Will The Markets Pick Up Momentum?
It is hard to tell the right moment when markets will readjust. However, the gradual increase of interest rates by central banks will take hold sometime soon to help cut the demand for goods and services. In addition, countries reliant on energy supply from Eastern Europe must find an alternative quickly to stem the substantial increase in energy prices.
Final Remarks
Markets peak when people can afford to buy goods and services in large numbers. However, high inflation is a disruptor to ordinary market activities such as trading in PrimeXBT and other consumer spending. Markets will rejuvenate when the supply chain issues get an elaborate solution and tension in Eastern Europe calms.
