January has been brutal for stocks. Why here?

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Stock market fears have risen almost 100 per cent this year due to inflation, rate hike and other concerns.

The New York Stock Exchange operates during normal business hours in the Financial District of New York on October 13, 2021. The Associated Press

Wall Street has been thrown into a sea of ​​unrest for the first time in 2022.

US stocks posted three consecutive weekly declines at the start of the year, as feared investors worry the Federal Reserve may tighten monetary policy more aggressively than originally planned to tackle rising inflation. Went. That uncertainty has sent the market’s fear gauge, Cabo’s volatility index, nearly 100% year-over-year, and has played into Majestic The Dow Jones Industrial Average pitted as Fashion Monday, then pulled out of a loss of more than 1,000 points – the first – to end the session on the green.

Swings can cause dizziness, but experts are quick to note that volatility is a healthy part of the market because it presents opportunities in the form of bargain prices.

“Investors now have to decide whether this is a buying opportunity on the downside or the first sign that trouble is ahead,” Mold said in comments emailed to the Post on Tuesday.

Here’s what investors are monitoring — and what could be sending them into a tailspin.

Uncertainty

Wall Street becomes concerned about any sort of unresolved tension, and as much as the potential impact it could have – whether from the latest coronavirus version or pending policy decisions – tends to get wild business.

“Markets hate uncertainty,” Wayne Wicker, chief investment officer at MissionSquare Retirement, told The Post in an email. “And the confluence of high interest rates, high inflation and moderate income growth is resulting in high volatility at the moment.”

Anxiety could play out in the form of massive swings, such as those seen in the early days of the coronavirus crisis as investors tried to adjust to a new reality. Although the pandemic has continued to pose complications for traders, from supply chain disturbances to an endless march of variants, panic cramps have become less severe than what was once uncommon and companies report a steady march of healthy earnings. Gave.

“Investors over the years have become accustomed to steady, consistent gains, which makes the current bumpy ride feel all the more uncomfortable,” Jeff Buchbinder, an equity strategist at LPL Financial, said in comments emailed to the Post on Monday. “

He noted that volatility is still well within historical ranges: The S&P 500 averages three pullbacks of 5% or more and one correction — defined each year as a decline of 10% from the most recent high.

“After a more than 5% pullback in 2021 and the S&P 500 more than doubling in March 2020, we anticipate more volatility in 2022,” Buchbinder said.

change in monetary policy

Much of the markets’ recent moves have been tied to fears about Federal Reserve policy as the central bank tries to tackle inflation. Americans are facing higher prices from the gas pump to the grocery store, and higher interest rates may ease that pain. But rate hikes are a double-edged sword that can also limit economic activity, which often gives tough competition to stocks, especially high-flying companies.

“The Fed is walking a delicate tightrope between slow economic momentum driven by O’Micron and sometimes high consumer price and wage inflation,” Lauren Goodwin, senior director at New York Life Investments, said in comments emailed to the Post on Tuesday.

The Fed’s change to a less supportive policy comes after more than a decade of central bank policy aimed at preventing prices from falling into an economically damaging cycle of deflation. It has forced investors to re-evaluate their assets, as central bank officials prepare to lift rates to near zero – and the contours of a new economy begin to emerge from the fog of the pandemic.

Van Heuser, chief strategist at bond rating agency KBRA, called the economic turnaround the “Great Recession”. He expects the economy to continue to grow above 2% of its long-term potential this year, but notes that 10 of the last 15 Fed rate-raising cycles have slowed.

“The ‘R word’ is back on people’s radars,” he said.

But Julian Kosky, chief investment officer at New Age Alpha, said investors should not assume that higher interest rates will have a hugely negative impact on future share prices.

“Investors should not assume direct correlations, because stock price movements are far more complex and never depend on a single cause,” Kosky said in comments emailed to the Post on Tuesday. “Our advice to investors is to focus less on what the Federal Reserve can or can’t do, and instead focus more on their individual stocks and whether these stocks can meet the growth expectations they have. Ripe in evaluation.”

economic data

Traders ruthlessly monitor economic data for insight into the health of the global economy (since this, in turn, will affect a company’s bottom lines.) Employment figures — such as weekly jobless claims or monthly jobs reports from the Bureau of Labor Statistics — Business productivity, consumer confidence and economic growth — such as GDP or retail sales — can affect markets on any given day as investors parse the data and incorporate it into their long-term outlook.

So far in 2022, the most important story has been the continued march to the highest level of inflation since the 1980s and the catastrophic tightness in the labor market, with workers leaving jobs at record rates and more than 10.5 million vacancies across the country. . Coronavirus rates, including infections, deaths and hospitalizations, have also rattled investors as they try to gauge the pandemic’s impact on business activity, in the form of business restrictions, declining foot traffic and low productivity.

Farr, Miller and Washington Chief Executive Michael Farr said the economy is “fundamentally strong” despite the crisis of imbalances and uncertainties.

“The consumer is healthy, the economy is expanding and unemployment is low,” Farr said in emailed comments to the Post on Monday. “Yet I am concerned about inflation, labor market inequality, supply chain issues and the fact that we are still very much in a pandemic.”

He cautioned investors to keep a level head and look long amid the supply chain slowdown and the Omicron transition storm.

“It leaves no mental bandwidth for panic to take into account those potential futures and examine the risk/reward across one’s investment time horizon,” Farr said.

income report

Corporate earnings are one of the most powerful drivers of stock prices. Strong quarterly results can generate positive interest in a company and drive up shares, while the opposite can erode investor confidence, which, in turn, can strip millions off their market capitalization.

After stocks plunged in the early stages of the pandemic, it was strong corporate earnings that restored investor confidence and helped fuel the market’s record-breaking run in 2021. For the past six quarters, actual earnings by S&P 500 companies have exceeded projected earnings. 17.5% according to FactSet’s analysis.

The S&P 500 index is expected to report year-over-year growth of more than 21% in Q4, FactSet estimates, but it could be harder to sustain growth going forward as companies continue to reduce profits in a less favorable environment. tries to Investors are hungry for good news amid volatile environment, and they are looking for earnings from giants like Apple, Tesla, Microsoft to provide some stabilizing power to the markets. Shares of General Electric fell more than 7% on Tuesday despite a fall in earnings, as investors reported a loss of $3.8 billion last quarter due to a supply chain headache.

“Only stellar results will make any real impact in the current environment,” AJ Bell financial analyst Danny Hewson said in commentary on Monday. “And there are fears that any sign of despair could knock the markets further.”

geopolitical tension

Struggles with global influences are a major source of risk for investors, as they can spread through the economy and spread in unpredictable ways. Omicron’s woes continue to complicate the picture for the overall health of international travel and the economic recovery, as companies around the world grapple with the fallout of rising infections in the form of trade and travel restrictions and staffing shortages.

In recent weeks, investors have also been rattled by Russia’s military invasion of Ukraine and a series of missile attacks in the Middle East, both of which could potentially cause disruption in energy markets.

On Tuesday, the Biden administration confirmed it was trying to secure energy for European allies if Russia cuts oil and gas exports in response to sanctions imposed for its invasion of Ukraine, as CNBC reports. .

Cboe’s crude oil volatility index rose to its highest level in 2022 in response to tensions. And oil markets – which are fueling negative trends for the year due to supply concerns and inflationary pressures – continued to rise, with both Brent crude and West Texas Intermediate crude trading up more than 1.6% on Tuesday.

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