The stock market’s fall this year has continued to gather momentum, despite volatile swings that have at times included rallies that collapsed within hours.
The S&P 500, Wall Street’s leading healthcare benchmark, ended 2021 with a total return of nearly 30%. It then set a record on January 3, but has since fallen about 18%. A 20% drop from the peak would put the index in a bear market – it closed uncomfortably on May 12 before staging a rally.
The Nasdaq composite, which is heavily weighted in tech stocks, is already in a bear market, down about 27% so far this year, while the Dow Jones Industrial Average is down about 13%.
The sharp declines mean that Americans who invested in the stock market, whether on their own or through a work-sponsored retirement account, likely saw the value of their stock portfolios decline a bit.
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WHAT LED TO THE STOCK MARKET SWOON AND WHY IT MIGHT GET WORSE
Much of Wall Street’s damage this year is the result of the Federal Reserve’s aggressive decision not to do all it can to support financial markets and the economy.
The central bank has already raised its main short-term interest rate from its all-time high near zero, where it has sat for most of the pandemic. And the Fed has signaled that additional increases of double the usual amount are possible in the coming months as it tries to stamp out the high inflation sweeping the economy.
Deliberate measures will slow the economy by making borrowing more expensive. The risk is that the Fed could cause a recession if it raises rates too high or too quickly. In the meantime, higher rates discourage investors from paying very high prices for investments, as investors can get a better return from owning ultra-safe Treasury bonds than they could a year ago. just a few weeks.
More recently, big shortfalls at major retailers have stoked investor fears that soaring inflation could deeply reduce corporate profits, a key driver of stock prices.
— A key question to explore: how are local investors coping and reacting to the Wall Street sell-off? It is likely that the answers to this will largely depend on whether they are older Americans, rather than investors in their 20s or 30s. How are near-retirement investors and retirees already making withdrawals from their retirement portfolio holding up? Are they rebalancing their stock portfolio? Are they pulling out now before it gets worse? Or “buy the dip” and buy shares of big names like Apple that are much cheaper than they were earlier this year?
— Young investors who are primarily trying to grow a nest egg for retirement are probably not as worried and may not make big changes. However, as many came of age during a bull market that lasted over a decade (2009-2020), perhaps they are motivated to cut their losses?
— Have investors come to view market downturns as something they can ride out, given the strength and speed with which the market has rebounded from bear markets in recent years? If so, there could be some colorful anecdotes among investors who don’t care about market ups and downs at all.
— Like a strong housing market, when stocks go up, investors can’t help but feel more secure financially, even if the gains are only on paper. This wealth effect can make people more willing to spend money. The question here is what is the impact on local businesses, if any, as stock market losses pile up. Fewer customers? Canceled orders?
— So-called retail investors have helped drive up stock prices over the past two years. A story could focus on where the sell-off left these novice investors, especially those who bought cryptocurrencies and meme stocks, which soared in 2021 but are now in crisis along with the rest of the world. market.
— Consider the demographics of your city. Areas with retirement communities, including some “working adult” developments for people 55 and older, might be worth exploring to connect with investors in retirement or a few years away. How has the stock market crash affected their vacation plans? Are they struggling to make ends meet?
— It may be helpful to reach out to someone who is not an investor and assess what kept them from making a long-term bet on Wall Street’s track record for steady gains over time. weather. Maybe they can’t afford to invest or don’t have confidence in buying shares of a company. Are they happy to have likely avoided the kind of heavy losses that many 401k plans have suffered this year?
— That said, don’t be surprised if a lot of people don’t want to talk about money, especially if they’ve accumulated losses. You might have better luck looking for investor forums online, like those on Reddit, or individual investors on Twitter or Facebook who have a history of disclosing their stock trades, sometimes even posting screenshots. screen of their holdings directly from their stock trading app.
— Connect with a stock market expert who can explain how not participating in the stock market has hurt some households.
— Individual investors are not the only ones making big money or losing their shirts in the stock market. Public employee pension funds, like those of many state teachers’ unions, can help illustrate the desirability and potential downsides of investing in stocks. Prior to the Great Recession, some high profile state public union pension funds lost billions betting on mortgage-backed securities, for example.
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