I’ve got some thoughts to share.
Higher-than-expected inflation data slammed investor expectations and rippled through markets, causing a broad selloff down to levels we were at back in June. (1)
I expect to see more volatility in the weeks to come.
Want a deeper dive into what’s going on and what could happen next? Keep reading.
Why are markets selling off?
Well, it happened. We knew that markets were going to continue their wild ride, and here we are. Stocks slid into bear market territory after a bad May inflation report showed that prices rose at the fastest pace since 1981.(1) It's clear that the Federal Reserve's efforts to cool inflation haven't borne fruit yet, and investors are nervous.
In response to these concerns about inflation, the Fed raised the benchmark interest rate by another 0.75 points, the most aggressive hike in nearly three decades.(2) Their move will hopefully yield relief from rising prices but also means the cost of borrowing will go up, which could dent business and consumer spending.
Should I be worried about markets?
Markets bucked and sold off again.(1) Should we be worried?
Not necessarily. These things happen pretty regularly, especially when headlines are negative. In fact, you might recall that we kicked off 2022 with a big drop.(2)
So, let’s talk about what’s behind the latest wild market ride. (Scroll to the end if you want to skip right to the reassurance.)
What led to the selloff?
Primarily, economic worries.(1) Worries about new COVID-19 surges. Worries about Ukraine. Worries about the U.S. economy.
A report just came out showing the economy shrank by 1.4% in the first three months of 2022, surprising analysts who expected positive growth of 1.0%.(3)
Pop quiz!
For a bear market to begin, do stock prices have to fall by 10%, 15%, or 20% from a recent high? Do you know the answer off the top of your head?
If you said 20%, you’re right!(1) Drops of 10% to 19.9% are market corrections, whereas a new bull market starts when prices rise at least 20% from a recent low.(1)
That’s just one fact about bear versus bull markets. How many more do you know?
Test your knowledge with the bear versus bull market quiz in this month’s Visual Insights Newsletter.
The more you know about bear and bull markets, the easier it can be to keep a level head and a long-term outlook when big changes shake things up.
So, how much do you know? What surprising new fact could you discover? There’s only one way to find out… Go ahead and click here to take a 2-minute quiz on the basics of bear versus bull markets.
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