4 Charts Explain What’s Going on in Selloff of 2022
- Stock markets have fallen sharply in 2022 as the Fed has hiked rates and Russia has invaded Ukraine.
- Some meme stocks are down 80%, while tech companies have been left battered and bruised.
- Here are four charts that explain what’s going on in the sell-off of 2022.
Stocks have tumbled this year.
has hiked rates, bringing the easy-money era to a screeching halt. Russia’s invasion of Ukraine has sent oil prices spiking. And investors are worried about red-hot inflation and slowing global growth.
It’s been something of a car crash.
But, look under the hood, and some parts of the car have been destroyed while others have escaped unscathed.
Unprofitable and speculative tech companies and so-called meme stocks have taken the biggest hit in what’s been dubbed the “spec-tech wreck.”
Meanwhile, buyers have only been interested in one sector: energy.
Here are four charts that explain what’s going on in stock markets in 2022. (All changes are as of Wednesday’s market close.)
Stock-market investors have flocked to energy stocks this year as worries about growth have dented the appeal of almost every other sector.
Oil and natural gas prices have risen sharply following the invasion of Ukraine by Russia, one of the world’s most important producers.
WTI crude, the US benchmark oil price, has risen around 50% this year to around $110 a barrel. The S&P 500’s energy sector has risen by a similar amount — with all other sectors either flat or in the red.
Its crime was issuing a warning that revenue “is growing more slowly than expected” due to the state of the economy.
Ben Inker, of Jeremy Grantham’s investment outfit GMO, said this week that these sorts of companies are “growth traps.” That is, they’re firms that investors thought were growing quickly, but which turn out not to be.
The chart shows the performance of the cheapest group of stocks in the US’s Russell 3000 index compared to the most expensive. Investors are ditching expensive names like never before, as Bloomberg’s John Authers has highlighted.
In 2020 and 2021, stocks soared as governments and central banks pumped stimulus into economies.
Some corners of the market became incredibly expensive, as measured by the ratio of stock prices to company earnings. Many technology companies rallied dramatically despite making no money.
But that trend has gone into a sharp reverse in 2022. Investors have dumped the pricier names and moved into cheaper ones, often in more economically sensitive sectors such as finance and commodities.
Meme stocks are stocks that are hugely popular with retail investors.
They’re often popular for reasons unrelated to their fundamental performance. There might be a load of short-sellers betting against the company; it might be massively invested in crypto; or it might simply make people nostalgic.
But in 2022’s market, investors have focused on how well companies can weather economic storms. And meme stocks have fallen flat.