With a recession around the corner and a recently active Fed, many are struggling to digest the market. Below will cover 6 global stock market trends; everything from crypto and meme stocks to stock trading apps in Canada.
6 Global Stock Market Trends 2022
A potential market rebound
The market has been in a rough state ever since inflation scorched the world. The conflict in Ukraine ignited a crisis in energy at the same time as a strong labor market. US stocks have been falling ever since the turn of the year, but the past couple of months have shown the most promising signs yet regarding a rebound.
The DOW Jones has climbed over 3,000 points since mid-June, but still has another 3,000 to go before it will reach its January 3rd, 2022 all-time high of 36,585. Nobody knows if the recovery will continue, but with US inflation cooling off, many are hopeful it will. And, any concern of the upcoming recession has long been factored into today’s prices, so we may see an odd situation of a stock market rebound during a technical recession.
Crypto decline
Bitcoin, which regardless of its commonly denounced technical limitations, remains the leader of the pack. Looking at Bitcoin can help us gauge the crypto market as a whole, and currently, it sits at around $24,000 – almost three times below its all-time high in November 2021.
There could be a few reasons behind the current crypto decline. Firstly, inflation and the cost of living crisis are likely impacting millennials and the middle class, which make up a lot of crypto holdings. Secondly, interest rate hikes are making it slightly more compelling to hold the USD than previously, in conjunction with the USD strengthening recently.
Bitcoin and the USD have an inverse relationship, meaning it’s negatively correlated. Given that interest rates will likely not fall anytime soon, and the lack of power the ECB has over interest rate hikes, we may continue to see a strong dollar and weak crypto market for some time.
Crypto warning signs for overall collapse
Crypto’s decline shouldn’t be viewed in isolation. Whilst it is very much its own type of asset, it signals a panic around high-risk assets, which is having ramifications for the wider market.
Additionally, with trading volumes much lower than before, the crypto exchanges are struggling themselves, showing their vulnerability during bear markets. Coinbase recently reported a 63% drop in revenue and a ~75% decline in share price, which is a huge problem for these companies when they spend so much money on marketing and infrastructure. Coinbase lost over $1 billion in Q2.
As the phrase goes in the crypto world “not your keys, not your coins”. In the event that hot wallet exchange companies go broke, customers are risking their deposits – even more so because of the lack of regulation. If panic sets in because of this fact, we could see a new kind of bank run: mass transfers out of exchanges and into private wallets (or withdrawing back to fiat), creating liquidity problems and price gouging through withdrawal commission and fees.
Whilst crypto will live on beyond the exchanges, the latter could cause an even more devastating crash for the former.
Meme stocks live on
Many thought meme stocks were a flash-in-the-pan phenomenon from the pandemic. After all, it was a big year or two for novelties and oddities. But, with the spectacular rally from Bed Bath & Beyond, a bedding and home decor company that reads “BBBY” as its ticker, it seems to be flavor of the month for the WallStreetBets members.
We have seen a 60% rise in a single day on the 16th of August, and a rise from around $5 at the start of August. One 20-year-old mathematician student has made $110m off this stock in the past two weeks. A week on, though, and the price sits at below the pre-WSB price at $10. Unsurprisingly, there will likely be 10 retail investors for every success story.
WSB wrestling with Wall Street and short positions seems to be continuing long into 2022. Blue Apron, which is also highly shorted, has risen sharply to $5+. Not only do meme stocks live on, but some hedge funds will likely consider this threat going forward.
Cathie Wood out
During the midst of the pandemic, with the rise of the retail investor, Cathie Wood emerged as a new hot shot investor. Her flagship fund, ARK Innovation ETF, had grown from $40 to over $156 in a linear 11-month bull run – very high growth for an ETF to achieve. The fund was all about “disruptive innovative companies”, but what this meant was it had included all of the “overpriced” tech stocks that seemingly crash by 2022.
The ETF plummeted back down to the $40s and Cathie has now become one of the most controversial investors in Wall Street. She has many controversial opinions, such as believing the Fed will cut rates in 2023, but many of these may be projecting a certain hopefulness as it concerns her struggling funds. One year ago, she was a maverick. Today, the Innovation ETF has underperformed benchmarks, with the S&P 500 beating it over 1, 3 and 5 year returns, and has charged 0.75% for it.
Everyone uses apps for trading
Much of the above trends come down to how traders are trading: using apps. Mobile apps are making the trades all the more accessible and instant, which allows more capacity for emotional or improvised trading. It also makes it easier for the everyday person to sign up.
But it’s also the features that accompany the trading on these apps, causing rise to meme stocks and strange behaviors. There are many features that help make trading social, be it through trading leaderboards, pages for trending stocks, forums, and Copy Trading in which users can automatically mirror the trades of trading ‘influencers’. It’s a little bit like what you imagine to happen if TikTok implemented in-app trading capabilities – absurd trends would arise.
It’s not all negative, of course, but it does present a problem for those that believe in EMH. It’s becoming increasingly difficult to suggest that there are no under/overpriced stocks and all trades and markets act rationally. Is this more or less preferable to trustworthy Wall Street and their algorithms having a monopoly on manipulating the market, though? Sometimes, it does feel like Wall Street vs Wall Street Bets.
