This January marked the worst stock market plunge since the March 2020 crash.
Technology stocks were hit particularly hard. The tech-heavy Nasdaq Composite dropped 10% in a month.
And the SPDR S&P Biotech ETF (XBI) saw an even bigger drop, falling 20% to start the year. Even the cryptocurrency market cap has been crushed, falling roughly $500 billion during January’s selling.
Obviously, this is deeply concerning… The red we’ve been seeing has hit all our portfolios, including mine.
Many readers are concerned whether we’re on the cusp of a market crash.
So today, let me explain what I see going on in the markets… and share my plan for handling this volatility…
Fed Fears
The market is really overreacting to the signals coming from the Federal Reserve. The Fed is signaling it will raise the Fed Funds rate several times in 2022.
It’s said it could raise rates three or more times throughout the year… and will reduce the assets it’s buying as well.
That’s been causing a lot of concern in the marketplace.
And while we’ve seen a broad market decline, the tech sector has been impacted a bit more than the S&P 500 due to its inflated valuations.
And all this volatility is causing some of those inflated valuations to come back down to earth.
I’ve warned readers several times about the lofty valuations of companies like Snowflake (SNOW) and Zoom Video Communications (ZM).
When companies trade at 80–100 times sales, those ridiculous valuations need a correction.
The Fear Is Overblown
We do have real inflation right now, but there’s one big reason why I think the Fed’s talk about rate hikes won’t become action.
There’s little interest in significantly raising rates before the November midterm elections.
I believe a 25 basis-point increase will occur in March. Beyond that, I’m very skeptical. We may see one rate increase after that, perhaps in Q2.
But during the second half of the year, I just don’t see the Fed touching rates. It’s too dangerous, and they won’t risk impacting the markets in that way.
Already people are struggling with the increases in the cost of just about anything we purchase. Having the markets, the value of our savings, and our stock portfolio decline at the same time is just unacceptable.
But we will see a secondary effect, though… With declining asset prices, I expect to see the labor market return to a much healthier state.
We had record levels of resignations in 2020, which was largely driven by the high value of people’s homes, stock portfolios, and cryptocurrency portfolios.
People felt like they had a cushion and could get by without working.
As asset prices decline, we will see a shift back into the workforce. I very much expect the labor force participation rate to increase in the coming months.
We must remember that we have a very strong economic environment despite the chaos we’re seeing in the markets.
Where Do We Go From Here?
I want all my readers to know my team and I are watching the markets very closely. We’re looking for great investment opportunities as fantastic assets and companies come back to realistic valuations.
Ultimately, I believe interest rates will stay below 1% in 2022. And that means that the money will continue to flow into the equity markets.
And in the meantime, we’re still on the lookout to help readers through the turmoil we’re currently experiencing… After all, many investors are worried and wonder exactly how to play this situation.
Should we buy? Should we sell? Should we hold?
The good news is I’ve put together an exclusive briefing to cover this very topic.
On February 16, at 8 p.m. ET, I’ll not only share the best way to play the markets… but I’ll also share what I’m doing with my own money right now… And I’ll be unveiling the name and ticker of one of my top stocks for an easy double this year.
If you haven’t already, please mark February 16 on your calendar.
And then go right here to RSVP for this event. I promise it will be worth your time to tune in.
I’ll look forward to seeing you there.
Regards,
Jeff Brown
Editor, The Bleeding Edge