The turmoil in the global economy wiped out over $7 trillion in market value from the large-cap stocks in the S&P 500 index in 2022. The S&P 500, which is widely considered the main benchmark for the performance of the US stock market, plunged 18% since the end of December 2021. Among other indices in the US, Dow Jones dropped more than 13%, while Nasdaq fell 27% in 2022.
Stocks in the technology sector took a significant knock. The tech sector accounts for $3 trillion of the total decline in the market cap in the S&P 500. The stocks of many tech giants, including Apple, Microsoft, Alphabet, and Meta, are in the red. Apple lost the title of the most valuable company in the world as Saudi Aramco, the Saudi Arabian oil company, surpassed the tech giant. Netflix became the poorest performer in S&P 500 in 2022, recording a decline of more than 70%.
The Echoes of Similar Trends in Other Major Economies
The global stock market is on a downward spiral owing to continuous selling pressure from investors. DAX 40, the benchmark index of Germany, is down 18% since the end of December 2021. During this period, Japan’s benchmark index Nikkei declined around 9%, while China’s stock market index, the Shanghai Composite, fell 20% so far in 2022.
Why Are the Stock Markets Falling?
The increase in inflation to a 40-year high and the US Federal Reserve’s aggressive monetary policies to tame inflation are the major reasons for the bearish trend in the stock market. Recently, the US Fed increased the interest rate by 50 basis points, and other central banks are following suit to control inflation. These interest rate hikes are likely to continue in 2022 if inflation rises further. Interest rate hikes, combined with high inflation, are hampering the overall economic growth, and fueling fears of recession among investors.
In addition, the Russia-Ukraine conflict, and a significant slowdown in China due to the resurgence of COVID-19 cases affected factory production and clogged supply chains, contributing to investor anxiety. The markets could continue to fall during FY2022 before resuming their longer-term upswing.
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