It has been a rough start to 2022 in the stock markets to say the least. So far in January, the Dow Jones Industrial Average is down more than five percent, the S&P 500 is down more than seven percent, and the tech-dominated NASDAQ has lost some 11 percent. And that is after Monday's wild trading day that saw the Dow lose over 1,100 points and come all the way back to end in the green, ending a six-day losing streak.
All of these declines have led to a recent rise in terms like "correction," "bear market," and even "market crash." However, most market analysts don't think that is the case. KTRH Money Man Pat Shinn, with Heritage Asset Advisors, says the markets are mostly reacting to the Fed ending stimulus programs enacted in the early days of the pandemic. "It's very, very easy to put stimulus on , but very, very difficult to take it off," he tells KTRH. "The Federal Reserve obviously wants to remove the stimulus without hurting the economy or the jobs market."
Paring back "the punch bowl" of easy money will prove a delicate balance for the Fed. But Shinn believes it is necessary after nearly two years and economic growth booming again. "With GDP at an all-time high, the Federal Reserve does not need to be buying 120-billion dollars a month in bonds, plus keeping interest rates at zero," says Shinn. "So they're going to back off on a lot of that stimulus...we want them to do so, but I'd like to see it in a gradual way."
So far, the Fed has signaled an end to the bond buying program this spring, with three or four modest interest rate hikes this year. That will likely lead to more turbulence in the markets, but Shinn believes it's no cause for panic. "This year I'm expecting ups and downs along the way, but by the end of the year still a positive return," he says.