Going Up?
Gary Gordon | Jan 19, 2022 11:27PM ET
Many people assume that 'stocks' were a great investment over the last year. Few realize that the gains have primarily been confined to the US large-cap space.
Smaller company stocks represented by the Russell 2000 have gone absolutely nowhere over the last 12 months.
In a similar vein, international stocks in developed market indexes have flatlined since May of 2021. Meanwhile, emerging market equities have experienced nothing but losses.
More recently, of course, large-cap US stocks have been “correcting.” The NASDAQ has witnessed a 10% pullback from its highs; the S&P 500 has given up as much as 5% from a record peak.
Is the price movement yet another buying opportunity? Maybe not.
Large-cap stock excitement has been a function of ultra-low interest rates, federal government stimulus, and Federal Reserve money printing. Now, however, the Fed has entered a tightening phase to battle inflation. Not only have the decision makers at the central bank decided to terminate digital money creation to buy bonds, but they will raise overnight lending rates.
The result? Borrowing costs are now quite similar to what they were before the pandemic.
Borrowing costs may be the same as two years ago, but stocks and real estate are dramatically higher. Why would large-cap stock investors be comfortable with borrowing costs that may continue to climb? At hyper-valuation levels that rival the stock bubble of 2000?
Get The News You Want
CEOs and corporate insiders of S&P 500 companies have already backed away. Rare is the case when insider buying activity has been this depressed.
Other speculative assets like Bitcoin have fallen on harder times as well. The popular crypto has given up 40% since November.
Granted, buying the proverbial dip in crypto might favor the bold. On the other hand, Bitcoin is a speculative asset that increasingly moves in the same direction as the S&P 500. And that may spell trouble for risk taking in January of 2022.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.