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Not a fun year for money

If you started investing in mid-2020 or 2021 — which many people have done – you probably had a Nice weather. Stocks rallied after the market crash at the start of the pandemic. Crypto has also taken off. The meme stock craze led by GameStop and AMC was comically profitable for some, at least while the joke lasted. NFTs they were almost completely made up, but hey, they were worth a lot of money. AND it’s not all newly invented moneyAnyway?

The situation is definitely felt like a bubble, but it was a fun bubble to be in, how many bubbles are there. It can feel like a real party. It’s less fun when the bubble bursts… which is where we landed in 2022. The line that suddenly kept going up couldn’t stop going down.

It was a huge blow to the overall economy. For stock market investors, major indexes like the S&P 500, Dow Jones Industrial Average and NASDAQ are all poised to end the year in the red. The winter of cryptocurrencies is definitely here. The real estate market is in troubleand mortgage rates, which have been low for years, are going up. Inflation is at a 40-year high, curtailing recent wage increases. The Federal Reserve’s fight against inflation by raising interest rates threatens to do so lay off workers and push the country into a recession. Americans, as a whole, still have hundreds of billions of dollars of excess savings built up during the pandemic, but they’re staying spending that money.

The whole Fed thing is that he’s supposed to be taking away the punch bowl just as the party gets going. Some say she waited too long and everyone got too drunkor that it’s moving too fast and many people are still sober, or that the punch bowl that’s not where the liquor is at all. Either way, it looks like the party is over for now.

It’s super easy to feel like a genius in a bull market

The stock market has moved on for the past decade or so it has generally been quite good. Though stocks tumbled when the pandemic hit, they rebounded quickly: The market got massive support from the Fed and many people their toes dug in in day trading for the first time. In some corners, it seemed like investors couldn’t lose. The S&P gained 16% in 2020 and 27% in 2021. But it has given back many of those gains this year.

That 2022 was going to be a tough year for stock market investors wasn’t necessarily surprising, given the market’s gains in 2021, explained Sam Stovall, chief investment strategist at investment research firm CFRA Research, in a ‘interview. “Every time the market goes up 20% or more, we have seen a decline of at least 5-10%, with an average correction of 10-15%. This time, unfortunately, it ended up being a bear market,” he said, meaning a 20% decline. That predictable decline was exacerbated by some external factors that made it worse. “The Fed waited too long to start raise interest rates We haven’t seen the supply disruption resolve as quickly as many thought, and earlier this year the Russia-Ukraine situation was not [yet] exploded,” added Stovall. Also a factor is China’s continued tough stance on Covidwhich has economic implications worldwide.

Big tech stocks they are back down to earth after quite an impressive run. Investor interest in some of the weirder things, from meme stocks to cryptocurrencies to NFTs, has declined and, in turn, so have their prices. Across the board, there haven’t been many places for investors to hide, not even the normal shelter of the bond market he was not sure.

“This is the first time in decades that both the stock and bond markets have fallen simultaneously. This year has created a lot of disruption for investors because there really was no place, not even gold,” said Jack Ablin, chief investment officer and founding partner of Cresset Capital. (Even the narrative that “bitcoin is a good hedge against inflation” seems not to have confirmed.)

It’s not necessarily a terrible thing for some assets whose previous valuations weren’t entirely justifiable to revert to a somewhat more realistic level. Lots of people like their Pelotons, but the company was probably never actually worth $50 billion. And for investors still interested in such assets, lower prices could be an opportunity to buy. “Look, think of stocks and the stock market like any other commodity. Do you want to buy a steak when it’s $18 a pound or do you want to buy the same steak when it’s $10 a pound? Ablin said. “When the price goes down, it actually turns out to be a better deal.”

To be sure, there are no guarantees that markets won’t get worse before they get better. The Fed is ready to continue raising interest rates in 2023, a maneuver not exactly loved by investors. Stovall said he doesn’t see 2023 mirroring 2022, but that doesn’t necessarily mean we’ve hit rock bottom yet. In October, he asked a group of financial advisors if they had heard from their “bell-ringing” clients, the people who want to get aggressive when the market peaks and sell just as it’s bottoming, in order to make the wrong move right at the wrong time. moment. They hadn’t. He told them, “Either you’re doing too good a job of keeping them in tune and so forth, or we haven’t really seen the capitulation that we usually see at the end of a bear market.”

It’s the economy of inflation and we live in it

The main economic storyline of 2022 has been inflation. It’s loud, it’s persistent, it’s annoying. Did everything else in the economy feel really bad even when, according to many indications, there is very well underway, also. Wages are rising, many jobs are available, and consumers, for much of the year, they continued to spend.

However, there is at least the risk of some dark clouds on the horizon. Retail sales have declined in the US in November, with declines in sectors such as furniture and automotive. Inflation is bad, full stop. The steps the Fed is taking to try to keep it in check could even lead to worse e make everything worse before it gets better. Loan interest rates are getting more expensive. People are putting more debt on their credit cards. If the Fed gets its way, workers could end up losing their jobs as the Fed has made clear it is looking for a slowdown in the job market.

“Despite slowing growth, the labor market remains extremely tight, with the unemployment rate close to a 50-year low, job vacancies still very high and wage growth high,” said Fed Chairman Jerome Powell. She said in a mid-December news conference, noting that the US had added an average of 272,000 jobs a month over the past three months. “Although job vacancies have fallen below their highs and the pace of job increases has slowed since the start of the year, the labor market continues to be unbalanced.”

“Medicine has the potential to be worse than disease,” said Ira Regmi, head of the macroeconomic analysis program at the Roosevelt Institute. They noted that this too will have a disproportionate impact. “Everything that happens in the economy happens at a faster pace and on a larger scale for people of color and of color. They are the first to be fired, the last to be hired.”

Government relief payments during the pandemic are now in the rearview mirror. Stimulus checks and money from the expanded Children’s Tax Credit were spent. For those who are out of work, unemployment insurance it’s back to how it was before (ie: a disaster).

That doesn’t mean the government is doing nothing for the economy. Lindsay Owens, executive director of the progressive think tank Groundwork Collective, noted that the Inflation Reduction Act, approved in mid-2022, makes major investments in areas such as climate and healthcare. “There’s a pretty substantial amount of long-term investing that’s just getting started that we’re going to see over the years if not decades,” he said. However, people won’t feel it as immediately as a check arriving in the mail. “Perhaps a warning is that the sugar level has run out,” Owens said. “The allowance is up, but the college fund is flush.”

The fun is over and it’s unclear whether the next one or a funeral is okay

There are many reasons to feel better about 2022 than 2021, money-wise. The widespread availability of Covid-19 vaccines means that the economy is in many ways back to normal. Many of the supply chain kinks that dogged the 2021 holiday season, for example, have been resolved. The job market has rebounded and many workers have found a job unprecedented level of power and leverage.

Sure, it sucks if you’ve lost money in the markets this year, but overall, the stock market generally goes up over time — really, staring at your 401(k) it won’t do anything for you right now. It also sucks if you’ve lost money on cryptocurrencies, which, you know, it’s not so clear whether that goes up over time in general or not, especially depending on the coin. Many market experts – and crypto folks – say these types of moments are when some of the investments and companies that were junk in the first place get wiped out, which overall isn’t the worst thing in the world. They also say it’s good for new investors to learn that prices can go down, even if they’re learning the hard way. I suppose if everyone decides that the cartoon jpeg monkeys probably weren’t worth hundreds of thousands of dollars, that’s probably fine.

Falling stock prices, high inflation, and rising interest rates aren’t fun, but maybe the reason it feels like the party’s over isn’t necessarily the current situation. Instead, it could be the general uncertainty of what lies ahead. It’s a little hard to hear woohoo on anything when there is a threat of an oncoming economic recession. Recession fears loom, which lowers the current mood, regardless of one’s individual economic situation.

“2023 could be a really painful year,” Owens said.

The best case scenario is that Fed engineers a soft landing and bring inflation under control without capsizing the economy. The worst-case scenario is that he hits the brakes too hard, throwing millions out of work and causing unrest for an undetermined amount of time. The jokers remain: Russia-Ukraine, China and Covid, for example. Given what’s happened over the past three years, who could even begin to guess what’s going to happen next? Markets are just like people in this respect: clearly concerned about the situation.

The party’s on hiatus for now, but it’s good to remember that the financial festivities probably aren’t over for good.

A messy hotel room after a party.

You are sober. Go home. Getty Images/Chris Clinton