A Wealth of Common Sense: Animal Spirits: The Pandemic Broke the Economy
With the economy teetering into a recession, most investors haven’t fully realized the severity of the stock market’s recent decline. The first six months of 2022 marked the worst six-month period for a 60/40 portfolio in history.
While all the attention has been on the declining stock market, bonds have been selling off at a rapid rate. Typically, stocks and bonds counteract each other. That helps smooth out overall investment volatility.
However, the bond market’s drop and the sharp rise in interest rates has had a profound impact.
Is the worst over yet? Many see more pain ahead. And the latest data indicates that the US is likely in a recession. That will be confirmed as soon as GDP data for the second quarter comes in.
If the economy is slowing, investors may be in for further downside. That’s because companies will likely report lower earnings. And analysts will downgrade stocks, adding to the current drop.
The slowing economy has at least ended the animal spirits that have driven markets since the start of the pandemic. The easy money and stimulus checks that led to large bull runs and investments in NFTs and the like has now reversed.
Now comes a retrenching as investors cope with inflation in goods and services, not asset prices.