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The start of 2022 has already shown some market volatility, with the S&P 500 down roughly 8% in late January. Experts say investors should monitor for signs of these potential catalysts to a selloff in 2022.
The post-holiday slump tends to hit all businesses in February and is historically the worst month for the S&P 500, with an average loss since 1950 of 0.09%. In February 2020, the S&P 500 dropped 8.4%. However, it gained 2.6% in February 2021 and rose 3% in February 2019. The bottom line, volatility is possible; watch closely.
There is heightened tension at present between Russia and NATO over Ukraine. North Korea has been testing missiles. There is escalating tension between China and Taiwan. All of these factors could put US supply chains at significant risk. Consider how these geopolitical events could impact stocks.
Currently, the price of crude oil climbed about 60% in the last year, reaching a seven-year high in January 2022. In 2008, oil prices reached as high as $140 per barrel and contributed to the economic crisis. Oil shocks have caused more recessions than any other catalyst over the past 50 years, US News Reports.
First, the good news, for the calendar year of 2021, S&P 500 companies are on track to report a 45% earnings growth, according to FactSet. Analysts also expect to see an S&P 500 earnings growth of 9.4% in 2022. However, the Federal Reserve is expected to hike interest rates this year. Therefore, if earnings growth falls short of market expectations, the reaction in the stock market could be severe. Keep a close eye on stocks with lower earnings.
Like it or not, the US and China’s economics are closely entangled. America still gets much of its manufactured goods from China. Therefore, what happens in China affects American companies and stocks. Beijing expects its gross domestic product growth to slow from 8.1% in 2021 to only 5.5% in 2022. Further, China has been cracking down on its domestic tech stocks. The Federal Reserve is likely to raise interest rates in 2022, while China recently reduced interest rates to inject liquidity into its banking system to offset its slowing economic growth. All of the above require a close watch.
The latest consumer price index shows a 7% increase in inflation compared to a year ago. Americans see huge prices at the pump, the grocery store, vehicles, and nearly everywhere across the board. The Federal Reserve chair Jerome Powell said normalization of the supply chain should help ease inflationary pressures in 2022. However, the 7% inflation is expected to hold steady for at least three months. If inflation rises, the Federal Reserve is certain to aggressively raise interest rates, which could be very bad news for stock prices, US News Reports.
