Learning Resources

Will the stock market crash in 2022?

31 May 2022


Stock Market Crash 2022 | VI

You’re lying if you say you aren’t a bit worried about a stock market crash this 2022. With the S&P 500 dropping to almost 20% since the year opened, it’s difficult to maintain composure looking at the charts.

We have always been told to invest for the long term. We want to avoid the market noises. But we know it’s not always that easy.

Investors have been liquidating their positions. Should you, too? Would you need to reassess your portfolio? Are you in trouble?

Stock market crash

A stock market crash isn’t anything new. Since the 1920s, this phenomenon has scared interested investors away and sent even veteran investors seeking refuge.

When share prices drop significantly within a short period, we call it a stock market crash.

Historically, the market has suffered quite a number of crashes. Some of the most unforgettable ones due to their impact on the market include the following:

Common sense dictates that the stock market could drastically drop in the same way that it could swiftly go up. A bull market doesn’t last forever anyway, nor does a bear market.

A stock market crash doesn’t come without warning. Neither of the previous ones did. There’s no crystal ball to tell us whether an event would trigger another huge market crash.

The Covid-19 crash, for example, came unexpectedly. We never knew a pandemic would hit and send the Dow Jones and S&P 500 tumbling down to 11% and 12% respectively.

Although the market got a grip on itself 3 months after the crash, there’s no denying investors have suffered losses, too. But actually, a crisis like this also comes with opportunities to invest… we’ll cover that later.

Look out for these triggers

If a stock market crash doesn’t come with a warning, how do we prepare for it?

We’ll summarise for you some factors that could trigger a stock market crash this 2022.

1. Rising inflation rates

We’re all aware of this. The US, specifically, is suffering from high inflation rates and there are even fears that hyperinflation could happen. But how is inflation a trigger to a stock market crash?

Inflation is when the value of our money decreases and prices of goods increase. When prices consistently rise, the stock market becomes volatile because consumers are burdened and the economy seems unstable.

Generally speaking, a high inflation rate could slow down economic growth because confidence in the market and economy is affected. This then would push another trigger – increasing interest rates as the Federal Reserve has already done.

Raising interest rates puts pressure on equities as well as urges companies to reduce spending, thereby, impacting economic growth.

2. Russia-Ukraine war

Several weeks passed and the conflict between Russia and Ukraine is still ongoing. But the impact of the war isn’t just confined to their territories.

Energy exports have been disrupted, and it’s a domino effect from there, as it also affected major global supply chains.

These disruptions hurt production and could eventually cripple company profits.

See also: Are oil stocks good investments?

3. China's situation

China is a major player in today’s economy, especially because it plays a big role in the global supply chains.

Companies like Apple and Tesla have manufacturing operations in the country, and with its recent Covid-19 struggles, losses aren’t surprising for these companies and those that are dependent on China.

All these events tell us one thing: a stock market crash this 2022 is not impossible.

But it doesn’t mean the end of your investment journey. Being pessimistic is not the way forward.

As value investors, we see bearish markets as opportunities to look for fundamentally good stocks that are selling at a lower price than their true value. These stocks would give us an edge to gain a bigger chunk in the long term.

A bear market has made Warren Buffett and other successful investors wealthier. So, do you think pessimism is the way to go?

Come join our FREE 2-hr masterclass as we teach you where and how to look for undervalued stock opportunities during a bearish market.

DISCLAIMER

This article and its contents are provided for information purposes only and do not constitute a recommendation to purchase or sell securities of any of the companies or investments herein described. It is not intended to amount to financial advice on which you should rely.

No representations, warranties, or guarantees, whether expressed or implied, made to the contents in the article is accurate, complete, or up-to-date. Past performance is not indicative nor a guarantee of future returns.

We, 8VI Global Pte Ltd, disclaim any responsibility for any liability, loss, or risk or otherwise, which is incurred as a consequence, directly or indirectly, from the use and application of any of the contents of the article.