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Why the stock market and bitcoin keep crashing – Vox

Unfortunately, stocks don’t just go up.

The last two years have been very exciting for many investors. after the stock market tanked at the start of the covid-19 pandemic, it has been on a hot streak. The S&P 500 is up 16 percent in 2020 and nearly 27 percent in 2021. Hordes of individual investors rushed into trading, plunging into meme stocks like Gamestop and AMC and enjoying the advantages of a fairly large bull market. Some dove into cryptocurrencies like bitcoin, which traded at more than $60,000 a coin for parts of last fall. Tech companies, from Peloton to Netflix to Amazon, felt like pretty safe bets for growth.

Reading: The stock market and bitcoin keep crashing

The environment made it perhaps a little easy to forget that bull markets don’t last forever and the waters can get rough. As the saying goes, markets often go up the stairs and down the elevator, and now we’re in the elevator.

the s&p 500, dow jones industrial average, and nasdaq are now well below where they were at the beginning of the year, down 16%, 12%, and 26%, respectively, as of market open market on Wednesday. Last week, the Dow and Nasdaq experienced their worst single-day declines since 2020. This week, the S&P 500 hit its lowest level in a year. many big and small names in the tech sector, in particular, have been struggling. bitcoin, which many proponents have long argued is a form of digital gold that could serve as a hedge for market turmoil, briefly dipped below $30,000 more than once this week, less than half of where it hit a high of nearly $69,000 in November 2021. the bond market has also taken a hit.

Stocks fell late last week and on Monday before offering a modest respite on Tuesday. On Wednesday morning, after the release of the latest inflation figures from the Bureau of Labor Statistics, stocks fell briefly before recovering. In short, markets are dynamic and on edge. inflation remains near 40-year highs. investors are anxious about what lies ahead and what politicians will do about it.

In the larger recent picture, there really haven’t been many bright spots. chances are if you look at your investments right now, you might not feel so good.

“In market dislocations, the correlations always go to one. everything moves together,” said nick colas, co-founder of datatrek research. “There is never a safe haven when the storm is raging.”

We’re in the middle of a big storm right now. It’s also something most investors should probably try to weather: Stocks don’t go down forever.

“While we’re seeing this general sell-off in the market and it seems like it can’t be helped, this isn’t exactly a time for panic,” said Kristin Myers, editor-in-chief of The Balance, a finance website.

there’s a lot to worry about on wall street and the economy right now

There is never a single answer to why markets do what they do, why stocks go up and down, or why investor sentiment changes from one day to the next. With that in mind, perhaps the best explanation for what’s going on right now is that there are plenty of reasons for investors to panic, and there are.

Inflation is a problem in the United States and around the world, with the US inflation rate near its highest levels in 40 years. In April, the consumer price index, which measures what consumers pay for goods and services, rose 8.3 percent from a year earlier and 0.3 percent in the month. The Federal Reserve has started raising interest rates and will soon start reducing your balance to fight inflation and try to bring prices back under control. Those measures may be necessary, but they’re also the ones that make Wall Street nervous.

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“it always works; that’s the good news. The bad news is that it always works because it creates a recession,” Colas said.

maybe not always. a recession in the near future is not a foregone conclusion, but it is more likely than it was, say, a year ago. Goldman Sachs analysts estimate that there is a 38 percent chance that the US economy will slip into recession in the next 24 months. deutsche bank also forecast a recession, at first saying it thought it would be “mild” and then turning a bit more bearish.

The Federal Reserve, ideally, could reduce inflation without causing a recession. In early May, Fed Chairman Jay Powell declared that inflation is “too high” and that the central bank has a “good chance” of restoring price stability without causing a serious economic downturn. But it’s a difficult needle to thread, Kristina Hooper, chief global market strategist at Invesco, said in an email, and tea leaves are hard to read. “Markets are clearly confused about what the Fed is going to do this year and how aggressive it’s going to get,” she said.

There are other uncertainties affecting investor sentiment at the same time. Russia’s war in Ukraine is ongoing, which could exacerbate inflation, supply chain problems, and oil price fluctuations and contribute to a general sense of malaise. slow growth in china and concerns about the impact of covid outbreaks there are also contributing to anxiety.

“There are times in the market when things look pretty predictable, and the market gradually goes up during those periods because tomorrow looks like today,” Colas said. “So there are times when things are very uncertain, like now, and the range of expected results is greater. when that happens, market volatility is always higher.”

sometimes what goes up will only come down a little, or a lot

As mentioned above, many assets have risen quite a bit in recent months and years, perhaps to the point of trading higher than they should have been.

sam stovall, chief investment strategist at cfra research, noted that going into the year, some declines were expected in the market. As a general rule, what goes up tends to come down for a while, at least a little. Every time the S&P has been up 20 percent or more over the course of a year since World War II, investors have ended up “digesting” some of those gains early in the new year—in other words, giving back some gains. . “Stocks were definitely expensive,” Stovall said.

the nasdaq, which tracks tech stocks, and the russell 2000, which is made up of small-cap stocks, have already entered bear market territory, meaning they are down 20% from their recent highs . stovall warned that the s&p 500 could be very close.

tech companies, specifically, have been hit hard. for example, the home fitness company platoon, once a pandemic darling, has been in deep trouble business-wise. its market capitalization, which once peaked at around $50 billion, is now below $5 billion. Stock trading platform Robinhood recently announced layoffs, as did streaming company Netflix, whose share price took a hit in April after it announced it lost subscribers in the first quarter of the year. Uber says it’s cutting costs and slowing hiring, and Facebook’s parent company also plans to slow hiring. Amazon, Google Parent Alphabet, and Meta share prices are down more than 20% this year.

Higher interest rates tend to negatively affect stock valuations and prices, and could hit technology especially hard. “Higher interest rates reduce future earnings, and for high-growth stocks, those future earnings are everything,” myers said.

as the wall street journal points out, in recent years, technology companies have served as a relatively reliable source of growth. what is not clear now is whether this is a temporary shake-up and slowdown or a sign of a broader and sustained slowdown in what has been a fairly hot area. maybe there was too much hype around some of these companies in the first place.

“tech companies, a lot of them, especially consumer products companies, were overpriced on the risk side, and a lot of those companies that have since [gone public], so to speak, mostly they have lost their valuations,” said arjun. kapur, a venture capitalist focused on internet and consumer technology.

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The crypto industry has also not been immune to market moves, a sign that it is not as insulated from the market as some of its investors would like to believe. “People who own crypto tend to own stocks, and that means that even if the asset class isn’t fundamentally tied to stocks, it’s still tied through investor confidence in the future,” Colas said. p>

“Most non-cash asset classes are under pressure,” Hooper said. “this includes crypto.”

As life returns to a more normal state compared to other times in the pandemic, some of the trends that made certain companies attractive are reversing. people are coming back to life in the real world and relying a little less on the internet for every part of their lives.

“We have to understand that we, as a society, as a world, as an economy, as a stock market, are still in the early stages of coming out of the zombie apocalypse, the lockdown and the pandemic.” said brian belski, chief investment strategist at bmo capital markets. “We continue to live by different rules, and we’re trying to undo those different rules as we inch through this transition to normalcy.”

Things may be bad for a while, but they probably won’t be bad forever

At a time like this, where all the cnbc chyrons are red and all the headlines are talking about market crashes, it’s natural to panic about the financial future. vox is not in the business of giving investment advice, but just in terms of some life advice, the best is probably this: don’t panic.

Over time, the stock market has historically risen, and almost any expert will tell you that’s what will happen eventually. think about how nervous many people felt about the markets in February and March 2020 when they were in free fall and what happened after that.

If you’re young and have the stomach for it, it might not be a bad time to buy, myers said, that is, if there are stocks or assets you’ve been watching that are now trading lower than they have been. in the past. “Think of it as everything being on sale,” she said.

While you often hear that these types of times are not a good time to review your 401(k), it may not be a bad reminder that you should review it more often. myers suggests once a quarter as a good rule of thumb, just to see what’s going on and reevaluate. “It doesn’t mean you need to make a lot of changes, but maybe it’s time you moved your assets around a bit,” she said. moving assets does not translate into getting paid.

If you’re closer to retirement, hopefully your portfolio has already moved away from riskier investments like stocks and has become somewhat less volatile. if that hasn’t been happening, now might be a good time to think about it.

big picture: Ideally, investing is a long game that you should be able to win.

“I think investors need to remind themselves that market declines are pretty common,” Stovall said. that does not mean that, over time, the markets will not recover. “If investing is gambling, I would love to know which casino pays the player 80 percent of the time. In 80 percent of all years since World War II, the S&P 500 has posted a positive 12-month total return.”

update May 11, 2022 10:30am m.: This story has been updated to reflect the most recent Consumer Price Index report from the Bureau of Labor Statistics.

See also: Man lost 500,000 life savings in crypto exchange ‘scam’ after trader ‘died with password to funds’ | Science & Tech News | Sky News

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