As expected, Wall Street wins again. In 2020 and 2021, retail investors were chasing financial markets recklessly. Armed with sites like Reddit WallStreetBets and a Robinhood trading app, not to mention young investing mentors on social media, they believed they had the Wall Street “tiger by the tail.”
In January, we warned investors (mostly falling on deaf ears) that 2022 would likely be disappointing. To wit:
“From the mainstream media’s view, expectations are high that 2022 will be a continuation of 2021. Maybe such will be the case. However, as we laid out just recently, many of the headwinds that supported the ramp in speculative behaviors have, or will, reverse in the months ahead.”
- Tighter monetary policy and high valuations.
- Less liquidity globally as Central Banks slow accommodation.
- Less liquidity in the economy as the previous financial injections fade.
- Higher inflation reduces consumption.
- Weaker economic growth
- Weak consumer confidence due to inflation
- Flattening yield curve
- Weaker earnings growth
- Profit margin compression
- Weaker year-over-year comparisons of most economic data.
“As is always the case, the event that changes the “bullish psychology” is always unknown. However, the eventual market reversion is almost always a function of changes in liquidity or a contraction in earnings.