Why the US Stock Market Will Not Crash in 2022

Dale Gillham, Chief Analyst and Head Trainer of Wealth Within

By Dale Gillham |

Most stock exchanges around the world have performed poorly this year with only Singapore, Hong Kong, London and Malaysia trading in positive territory. While Australia is down over 3 per cent so far this year, the world is more concerned with the US stock markets, as many are suggesting they are fundamentally overvalued and, as a result, they have been hit harder, especially the tech sector as the NASDAQ is down over 13 per cent.

What is driving the current fall on the US stock markets?

There have been many emotive headlines of late including the bubble has burst, the crash is happening now, get ready for the biggest crash ever, yet the US markets are only slightly weaker and they are certainly not crashing. This is because the economic situation in the US right now is vastly different to what it was during the crash in 1987 and with the GFC in 2007, as both crashes were preceded by bubbles that were driven by rampant speculation and over borrowing, neither of which is prevalent today. That said, I do believe the US stock market is somewhat overvalued, which is a normal occurrence that occurs in any bull market.

Right now, inflation in the US is high, which is concerning although it is not high across the whole economy, instead it is contained to areas, such as energy costs. So, while inflation is high, we need to understand what is driving it and so far everything is pointing to things settling once the world’s supply chain issues are resolved post COVID.

The US Fed Reserve is also talking about four interest rate rises this year although so far it has only been talk and the Fed have been known to say things to see how the stock market reacts, which has resulted in all US indices falling. The question now remains as to whether the US market will crash this year. While I believe the market is slightly over valued, it will not crash. Instead, it will fall in a normal downward move most of which has already occurred, if not already over.

This year the Dow Jones has been down around 10 per cent while the S&P500 has been down around 12 per cent and there is a possibility they may fall between 15 and 18 per cent, which will be confirmed in the next few weeks. Despite this, I believe the US markets will have a positive year.

What were the best and worst performing sectors last week?

The best performing sectors included Healthcare up 3.95 per cent followed by consumer Staples up 2.22 per cent and Industrials up 1.04 per cent. The worst performing sectors included Information Technology down 3.02 per cent followed by Communication Services down 2.72 per cent and Utilities down 2.18 per cent.

The best performers in the S&P/ASX top 100 stocks included Magellan Financial Group up 19.82 per cent followed by Evolution Mining, which was up 12.81 per cent and Northern Star Resources up 12.71 per cent. The worst performing stocks included Fortescue Metals down 13.05 per cent followed by Mineral Resources down 10.23 per cent and QBE Insurance Group down 8.48 per cent.

What's next for the Australian share market? 

In my last report, I indicated that investors should exercise caution and a little patience before jumping into the market, as it was unconfirmed whether it had finished falling. So far, this strategy has paid off as the market has shown weakness since it traded up to a high of 7,646 points on Thursday 10 February.

Over the past six trading days, the All-Ordinaries Index has failed to trade above that high and is currently showing weakness and indecision. Once again, I recommend that investors exercise caution, as it is still possible that the All Ordinaries Index could fall below 7,000 points over the next few weeks.

Investors who jump in early hoping to grab a bargain may get the opposite because even Telstra, which is normally a predictable stock, fell 4 per cent last Thursday. The good news is that once the current volatility is over, I believe the Australian market will do well in 2022.

 For now, good luck and good trading. 

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.

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