Stock Market Fluctuations, What is Going On?

The stock market has been trending downward in 2022, and despite brief rallies here and there, it looks like the trend will continue.

While almost everyone is anticipating a recession in the near term, not everyone is as pessimistic about the very-near term. Some analysts suggest the S&P 500, which is down 20% year-to-date, will make somewhat of a comeback in the next six months as inflation begins to cool.

So far, however, despite aggressive interest rate hikes put in place by the United States Federal Reserve, inflation hasn’t cooled. So, are its days in the green just a tease?

This has made it much more difficult for businesses to raise money from investors, who are more cautious in a bear market. If your business is trying to raise capital, VerifyInvestor.com can make it easier by verifying accredited investors for you. This is essential if you are advertising to the public for investment — one of the key differences between Reg D 506(b) vs 506(c). 

We don’t have a crystal ball, but here’s what we know.

Key Factors Causing Stock Market Volatility

The stock market has been on a roller coaster ride, flying high on Mondays, only to fall by Fridays.

The main factor causing the downward trend and continual dips in the stock market is the looming (or current) recession. Depending on who you talk to, the U.S. is currently in a recession or headed for one very soon.

The stock market, being a forward-looking mechanism, is anticipating a recessionary economy. This means reduced earnings and slower growth for companies across the board. And thus, a bear market.

One reason we may be seeing days with gains, however, is that many investors are taking advantage of the down market and “buying the dip.” Aside from the spring of 2020, this has been one of the largest dips we’ve seen since the 2008 financial crisis. When investors sense opportunity, they act. And if the market shoots back up, a low day could be a good opportunity to stock up (pun intended) on great businesses at a discount. 

That’s not the end of the story, though. When the CPI breaks or the Fed raises interest rates, the market responds in a dramatic fashion. Hence, the volatility.

The actions taken by the Federal Reserve have both an immediate and lasting effect on the direction of the stock market. So far, the decision to raise rates has sparked fear in investors, who then exit their positions.

But rate increases take time to work their way through the economy, which means their effects are still yet to be felt. So the speed at which rates have risen raises the risk the Fed might go too far, pushing the economy into a recession (or a deeper recession).

All that to say, the U.S. and the world are continuing to face high inflation, high-interest rates, and changes in economic policy, which result in economic uncertainty. All of this has created stock market fluctuations that are likely to continue.

There’s Never Been a Better Time to Invest

If we are in a recession or if we enter one soon, these are the times we will look back on and be glad that we bought the dip, or wish we would have invested more.

Most experts agree that the market will continue to fall, but how far? Nobody knows. And what we do know, even without having a crystal ball, is that it always goes back up eventually.