Tech’s Nightmare On Wall Street

Facebook’s parent firm Meta just plunged over $200 billion in stock value. That’s the biggest-ever collapse in market value for a US company.

Meta’s 26% decline in its stock price weighed heavily on major U.S. indexes and rippled across the market. The major averages all concluded Thursday’s trading session deep into the red.

Market mainstays like Amazon, Snap, Twitter and Spotify all recorded major drops.

The Nasdaq ended -3.7% and was the big loser as Meta tumbled following its earnings report. Meta is the fourth-biggest component in the Nasdaq 100.

The S&P cratered -2.4% , its biggest percentage decline in a year. In addition, ten of the eleven S&P sectors also closed lower.

Even though it was spared the “Meta-effect”, The Dow was still down 1.4%.

Early Signs of a Crash:

The fall of the tech sector could be an early sign of a total market collapse. The reasons for a new crash include:

– Inflated Stock Prices: History shows that when stocks become valued two to three times higher than their long-term average, as they are now, a crash follows relatively soon thereafter.

Using virtually ‘free’ money from the Fed, investors bought stocks on margin. This inflated the price of stocks compared to actual value. While it’s not unusual to see margin debt rise over time, it is unusual for it to climb more than 60% in a single year like it has. In the past 25 years, it’s only happened three times: directly before the dot-com bubble burst, before the Great Recession, and in 2021.

A flood of margin calls could be very bad news for the broader market. Without the Fed’s ‘easy money,’ many investors might be forced to sell positions to raise the cash needed cover their margin debts. Such a situation can create a cascade of catastrophic declines. The S&P 500, Dow Jones, and Nasdaq 100 could all be headed for drops of more than 50%.

– Falling Confidence: Consumer confidence is around Great Recession levels. This is mostly due to falling real wages and less faith in the government to handle crises.

– Global Crisis: The global markets are under strain from a Chinese economy on the brink of collapse and a potentially violent conflict in Ukraine.

This pattern implies that stock prices will likely stay depressed for years. A full recovery isn’t likely until inflation is low enough for a new government stimulus. After the Great Depression, the stock market took over two decades for its inflation-adjusted price to return to pre-crash levels.

What This Means to Your Retirement

In just a day, Zuckerberg saw $28.6 billion wiped from his net worth. How much did your IRA lose? This was an eye-opening reminder of how quickly you can lose your investment even when the markets are closed.

Check your asset allocation now. Have you grown complacent after more than a decade of stock market growth? Are you too aggressively invested in stocks to hedge against a possible repeat of the 2000 and 2008 crashes?

If you can’t wait two decades for stocks to recover, begin to prepare now, both financially and emotionally, for an inevitable major market decline. One way to do this is to begin adding assets to your portfolio that are less volatile – like gold.

Call American Hartford Gold at 800-462-0071; we can help.

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