2022 has not been the financial year many people were hoping for. In 2019, we saw the S&P 500 rise by 29%, 19% in 2020, and 27% in 2021. The S&P 500 is currently down 18% on the year at the time of this article being published.
So, what is going on? What financial trends are currently taking place to cause such a disruption in the market? Well, we’re going to go over three of the most prominent trends and factors we believe could be contributing to the market turmoil. We recommend taking a note of each of these trends and watching them throughout the next few months.
Mergers and Acquisitions
Mergers and Acquisitions saw an unprecedented year in 2021, with $2.9 trillion dollars having been spent in deals. This was almost triple the amount in 2020. In 2022, the market has taken a slightly different turn, so what does that mean for mergers and acquisitions?
Unfortunately, it does not seem as if the same trend will continue in 2022. In Quarter 4 of 2021, the market began to fall and with it came M&As. In the two completed quarters of 2022, there have been further drops in the number of mergers and acquisitions. For more information, this article here goes over the current financial year in more depth.
The year is still young, with just about six months left, there is plenty of time for a market rebound. Many financial analysis reports from before the start of 2022 had predicted the continuation of the previous trend.
Top Stocks Dictate Market
Fun fact, 25% of the S&P 500 is just the top six largest U.S companies. Meaning, if any of them take a particularly large hit, it would send ripple effects down the entire stock market. The NASDAQ is even worse, with 40% consisting of the top six largest companies.
On the contrary, these stocks also play a large role in bull runs. A Goldman Sachs study said that the top 5 tech stocks (Microsoft, Apple, Alphabet, Nvidia, Amazon) were responsible for most of the gains in this past bull market.
To read more about the top stocks’ sway on the market, check out this article that weighs the top 10 stocks by index.
With a surplus of shortages, inflation skyrocketed in May. Consumer prices rose by 8.6%, and is at a 40-year high. However, the United States is not alone in facing inflationary issues – as the two causes are largely outside of our control.
For starters, Covid-19 is unfortunately still here, doing its thing. Shortages are continuing around the world and are increasing inflation rates as a result. In addition to this, the recent Russian invasion of Ukraine has sent shockwaves across the world, resulting in major grain shortages that will continue to impact our global economy over the course of the war.
In this article, we went over three of some key economic trends for 2022. Starting with Merger and Acquisitions, we noted that there seems to be an unexpected decrease in them with the last quarter of 2021 and the current state of 2022. Following that, we covered how the few largest stocks make up a staggering portion of our stock indexes such as the S&P 500 and the NASDAQ. Finally, we went over the increase in inflation.
We hope you were able to learn something new from this article, and would like to remind you to not get caught up in the market and just be patient, and try to stay positive during this bear market.