Since the lows in March of 2020, the stock market has doubled. Think about that for a moment. The S&P 500 closed at 2,237 on March 23 of that year and closed Wednesday at 4,363, an incredible gain of more than 95% in 18 months. Numerous reasons have been cited, including the incredibly loose monetary policy that has been in place for years but went nuclear when the COVID-19 showed up in the winter of 2020. Toss in Reddit’s WallStreetBets crowd, which had government handouts to trade with while locked at home, and you had all the ingredients for the proverbial melt-up.
The truly scary situation for investors is the recent 5% correction (which was the first in almost a year) once again brought out the buy-the-dip crowd, so it wasn’t a cleansing, shake out of the weak holders event. The sword of Damocles hanging over the market includes rising interest rates, Federal Reserve tapering due to begin soon, big increases in energy costs, ongoing supply chain issues, stagflation worries and Wall Street analysts that are not nearly as positive on the upcoming earnings seasons as they were for the second quarter. Add the debt ceiling and China worries, and the cauldron continues to simmer.
The difficult question for investors is what to do now?