market capitulation

The stock market has been on a downturn since the beginning of 2022. This means that a lot of companies has become much cheaper to invest in, however, there is still reason to believe that the stock market will dip lower. Is it time to invest now or wait?

Stock market volatility

Last year saw a great increase in the overall stock market valuation from the low in March 2020 when Covid-19 hit the world. A lot of stocks increased their respective valuations and some stocks soared to new record valuations. As 2022 came along troubling news started to take hold of the investors mood and the market started to shake. Since then, it has been a fairly volatile market in a steep downtrend. Here are a few things that has been affecting the market and continues to do so creating a perfect storm.

  • Rising inflation
  • Rising interest rates
  • War in Ukraine
  • Continued disruptions to logistics due to Covid-19 shutdowns
  • The long delays in deliveries of semiconductors
  • Overvalued stocks

Governments all over the world poured money into the markets as a response to the covid-19 outbreak in order to help companies coop with losses. This was probably a good thing; however, it had the same effect as giving a kid all the candy it can eat and we all know how that ends: sugar rush, and then crash. This is where we are at now. The real question is how deep into the crash are we? How low can the stock market dip before the trend turns. Will it be a long stretched out low point that ends with a recession or stagflation, or will it end quicker?

When will the stock market turn up

Analysts from different camps all have their thoughts about this and some say that for sure it will end in stagflation, and some are more optimistic. The investors on the other hand, rarely acts in a predictable way and can during shorter bursts push the market up or down. The stock market often reacts based on expectations instead of facts. What many analysts are looking for now is market capitulation. Market capitulation or investor capitulation as it is also called is when investors, driven by fear, sell of their stocks because they do no longer believe that they will regain their losses. When this happens en masse, it usually indicates that the bottom has been reached and it is often followed by a stock rally. It is very difficult to see it coming or even pinpoint it when it happens. Usually this is only spotted in retrospect. According to many acclaimed analysts this has not happened yet indicating further dips.

The truth is that no one knows how long it is going to take for the stock market to turn. What we do know is that if you chose to enter the stock market now, it is possible to get many stocks to a lot lower valuation than if you entered the stock market back in December. But it may be even cheaper if you wait. Here is a beginners guide on how to invest in stocks.

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