Investors are shedding stocks, with the S&P 500 recording four straight drops of 1% through Friday, the longest such streak since late 2018. Here's a look at what's causing the sell-off.
For nearly two years, investors had poured money into stocks, confident that the Federal Reserve would help keep share prices upright. The Fed’s super-low interest rates and the rapid U.S. economic recovery from the pandemic recession made stocks a more lucrative bet than safer investments such as low-yielding bonds.But the Fed is now threatening to end the party.
The unknowns are daunting: The Fed hasn’t had to raise interest rates sharply to combat inflation since the early 1980s, and policymakers have no experience at all dealing with the aftershocks of a global pandemic. Omicron and other COVID-19 variants threaten to disrupt business activity in unpredictable ways.
The damage has been widespread, with the most speculative corners of the market hit in particular. Bitcoin has fallen by more than 40% since hitting an all-time high in November. The smaller companies in the Russell 2000 index, many of which are losing money, have lost 18% since peaking in early November.
“I try to tune it out and stick with the plan,” said Binder, who started a company that lets financial planners and other clients broadcast voice messages to customers over Amazon Alexa. The stock market’s track record, she said, suggests it usually makes more sense to wait out turbulence than to try to pick a good time to sell. For the past four decades, she said, the S&P 500 “has always found its way back to record highs.
“Today in the U.S. we are in the fourth superbubble of the last hundred years,” famed value investor Jeremy Grantham said in a recent report. He says not only are U.S. stocks in a bubble, but so are real estate and bonds. Higher U.S. rates could also have global repercussions, luring investment out of other countries, especially in the developing world, and destabilizing the world’s financial markets.
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