The stock market has been on a roller coaster ride this year, with sharp declines followed by brief recoveries. The S&P 500 and NASDAQ Composite indices have been particularly volatile, reaching their lowest points of the year in September. Market volatility remains high, and investors are uncertain about the future of the stock market. To understand where the stock market is heading, it is important to look at the factors that have caused recent declines and to consider the potential impact of new tax provisions and Federal Reserve policies.
Eric Freedman, U. S. Chief Investment Officer at Bank, emphasizes that it is essential to have a plan that helps inform your investment decision-making, especially in times like these. He warns that markets are likely to remain volatile, but urges investors to maintain a long-term perspective.
The most notable factor behind the significant decline in stock prices in early 2000 was the bursting of a stock market “bubble” in technology stock prices, in particular for some early-stage dotcom companies. In other cases, stock market crashes may be due to external events that exceed other fundamental factors that traditionally drive stock market performance. The new tax provisions being considered by the House of Representatives and the Senate are included in the Inflation Reduction Act, recently passed by Congress and signed into law by the President. These provisions could affect the timing of the stock market recovery.
The Federal Reserve is looking for signs of economic and market slowdown as proof that rising interest rates are cooling strong inflation. Existing home sales are already at 10-year lows, with 30-year mortgage rates hovering around 7%, more than doubling the 3% rates at the beginning of the year. Unemployment claims continue to fall, which is a sign that the labor market is still too hot. Overall consumer payments for rents, mortgages and credit cards also increased, according to a Bank of America report.
Social media stocks, including Meta (Facebook's parent company), Alphabet (Google's parent company) and Snap, warned that advertising revenues are lower than expected. Their stock prices fell in the news. Experts recommend staying the course and investing for your long-term goals regardless of what the market does. It is impossible to time the market and, historically, it has always recovered.
The Federal Reserve is trying to maintain a delicate balance between low unemployment and low inflation through monetary policy adjustments. There are still two more Fed meetings this year, one in November and one in December, which investors are eagerly awaiting.