Investors who were hoping to ease themselves gently into the first trading week of the year might have been feeling a little stressed, with Wednesday seeing a large sell-off in stocks. It was actually the worst day for the tech-heavy NASDAQ index since February 2021—the popular index dropped by more than 3%. And the reason behind this market fall? It’s what we all believed was the main factor coming into this year—inflation, and, more pointedly, just what the central banks may decide to do about it.
The minutes from the latest US central bank meeting was what may have driven investors to the exits. The Fed might have to raise rates at a faster pace than expected, the release stated. This should not have been a surprise to those who have watched the Fed’s somewhat relaxed stance towards inflation until recently, but markets appeared not to like seeing opinions like that put down in black and white!
But before we get too carried away and extrapolate this into the Great 2022 Bear Market, as usual it pays to take a step back and keep things in perspective.
It was only on Tuesday—yes, the day before the big sell-off—that the broader S&P 500 set yet another fresh all-time high. So it would be a braver analyst than me who declares that we have already seen the stock market top for the year.
There were various sharp sell-offs all the way up throughout 2021, and ultimately investors were well rewarded for buying the dip. Whether this proves to be the case this time around remains to be seen. It has certainly left us with an interesting finish to the week, with the latest US Non-Farm payrolls jobs numbers out on Friday.
It would not be surprising to see increased nerves and volatility over this release, given the tone that has already been set for this week. But don’t be surprised if in a week’s time investors are wondering what all the fuss was about, and calmer markets (and minds) have returned.
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