"Investors have had a nail-biting ride in the stock market this year. The S&P 500 index fell into a bear market in June, a 20% dip from its previous high, and threw a bucket of cold water on two years of unusually robust growth and profits." —Sarah Hansen
Since then, stocks have rallied, but there is really no guarantee that the gains are here to stay.
"Stocks have since rallied: Early last week, all three major indices notched their biggest one-day percentage gains since June 24. But there’s no guarantee those gains are here to stay." —Sarah Hansen
Right now, the economy is in uncertain territory, to say the least, but what might the future hold?
"The economy remains in highly uncertain territory: Inflation keeps rising despite the Federal’s Reserve’s attempts to keep prices under control by raising interest rates, the housing market keeps getting more expensive as mortgage rates soar, and sectors of the stock market that have thrived over the two years — think tech companies and work-from-home stocks like Zoom and Peloton — are no longer performing as they once did. As earnings season (when publicly traded companies release information to shareholders about their performance in the previous quarter) kicks off, investors are watching closely for clues about the state of the economy and the likely trajectory of the stock market over the next few months. Will there be another recession, or not? Will stocks keep falling?" —Sarah Hansen
According to experts, a recession could be right around the corner.
"Citing a prolonged stretch of higher inflation and the aggressive policy response by the Fed, analysts at the Wells Fargo Investment Institute say investors should brace for a downturn." —Sarah Hansen
In fact, many believe that we are technically in a recession.
“We are calling for a moderate recession that likely begins soon and lingers into the middle portion of next year...which is defined as two consecutive quarters of negative GDP growth, but we won’t know for sure until the government releases its official GDP data later this month." —Scott Wren (senior global market strategist)
On the other hand, certain financial experts are more optimistic, stating that the economic will likely slow down significantly, but we will not endure an official recession.
“We continue to expect the economy to slow meaningfully but avoid a 2022 recession...the economy hasn’t contracted enough, and the labor market hasn’t taken enough damage, to warrant calling the current downturn an official recession." —Katie Nixon (chief investment officer for Northern Trust Wealth Management)
Additionally, a lot of experts suspect that stocks will likely fall further, so investors shouldn't get too comfortable.
“Make no mistake...We don't believe this bear market is over, even if we avoid a recession.” —Morgan Stanley (team of analysts)
The reasons for this are many: inflation is a contributing factor, as well as swiftly rising interest rates and waning consumer confidence.
"The analysts, led by Chief U.S. Equity Strategist Michael Wilson, say stocks aren’t likely to grow as much over the next year as companies grapple with inflation, which is making a serious dent in their bottom lines. Rising interest rates and waning consumer confidence also pose a risk to corporate profits. Northern Trust’s Nixon says continued tightening by the Fed or a loss of investor confidence surrounding a disappointing earnings season could also push stocks lower." —Sarah Hansen
Jeremy Grantham has a more extreme—and pessimistic—view of the situation at hand.
“It’s likely that there will be considerably more pain before this is finished...the downturn could last another six months to three years, noting that the timing of a market bottom is notoriously difficult to predict." —Jeremy Grantham
The stock market will likely become even more volatile, making it a crucial time to diversify your investments and build up—or bulk up—your emergency fund.
"Recession or not, investors should be prepared for a rocky ride in both the stock and bond markets for the remainder of the year." —Sarah Hansen
That being said, volatility is to be expected, so it's important not to panic and sell all of your stocks and bonds—holding them could prove to be quite beneficial in the long run!