Stock market woes will persist into the second half of the year but signs of hope will emerge for beleaguered investors, experts told ABC News of their predictions.
The stock market took a historic plunge over the first half of the year, and many of the same economic threats still loom as inflation remains sky-high and the Federal Reserve pursues aggressive moves to tame price hikes by raising borrowing costs. That means volatility will continue to hammer markets in the coming months, experts told ABC News.
But the major indexes will likely end 2022 higher than they stand now, as rock-bottom share prices begin to promise a buy-low opportunity that outweighs the risk of further decline, the experts said. As investors eventually jump off the sidelines, the market will stabilize and begin to recover, they predicted.
Over the first six months of the year, the S&P 500 — a popular index to which many 401(k) accounts are pegged — plummeted 20.6%, marking its worst first-half performance of any year since 1970. The tech-heavy Nasdaq fell even further, dropping more than 28% over the same period; the Dow Jones Industrial average dropped more than 14%.
Persistent threats to the market include inflation, ongoing interest rate hikes, the Russian invasion of Ukraine, and a potential recession. In the short term, these looming dangers will put downward pressure on the stock market, since market performance depends on the financial outlook of companies across the economy, experts said.
Ultimately, investors are deciding whether to buy or sell based on the likelihood that a given business will succeed over the coming months and years, Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices, told ABC News.
"It all comes down to earnings," Silverblatt said. "We're buying a stock based on how much we think the company is going to make."
Economic headwinds will make it challenging for companies to show investors a path to success, experts told ABC News.
For instance, in order to tame an inflation rate last seen more than four decades ago, the Federal Reserve has undertaken an aggressive effort to raise borrowing costs, which in theory should slow the economy, slash demand, and reduce prices. But the approach will likely weigh on markets, as investors anticipate poor business performance amid the economic slowdown, Silverblatt said.
"In order to stop inflation, the Fed has got to create pain," he said. "Nobody likes pain. If I'm taking a splinter out of my finger, I'm still yelling and screaming as I'm doing it."
At its most recent meeting, last month, the Fed raised its benchmark interest rate 0.75%, its largest rate increase since 1994. The Federal Reserve has said it expects to continue raising interest rates in response to elevated inflation.
Experts also cited the threat posed by a potential recession, which many observers define through the shorthand metric of two consecutive quarters of decline in a nation's inflation-adjusted gross domestic product, or GDP. A country's GDP is the total value of goods and services that it produces.
If the U.S. were to enter a recession, it would likely further dampen the hopes of businesses and consumers alike, which could slow economic activity and batter markets, experts said.
"The market is suspect of the prospects for earnings and growth," Harvey said.
But the market will reach a point at which it has dropped far enough that share prices present investors with a purchase that looks more like a buy-low opportunity than a risk of further losses, the experts said. At that point, the market will stabilize and begin to recover as traders jump back into stocks, they added.
Market analysts expect the stock market to reach this point of bottoming out sometime before 2023. Past recoveries suggest market performance can suddenly flip, said Sam Stovall, the chief market strategist at research firm CFRA.
"To know how frequently these declines occur -- but then again, how quickly the market gets back to break even and beyond -- it will remind investors they are better off preparing a shopping list," Stovall said. "Think more about buying than bailing."
But investors should take into account their level of financial cushion, and thus their ability to withstand losses in the short term, said Silverblatt, the analyst at S&P Dow Jones Indices.
"Even if you think your stock is the best stock in the world — the new Apple or Amazon — in two years," he said. "If you can't live through it because you can't take the loss, you can't play it."