The fact that the Stock Market has seen a massive decline in value up to the last months of 2022, has led many investors to ask if the stock market is headed for a crash in 2023. Many stock traders who have not been used to the bear season in the past have been panicking over their purchased stocks whose values had declined so much this year.
Will the stock market rise again or are we headed for a crash as many supposed in 2022? This work has examined these pressing questions about the stock market.
Understanding the Stock Market
One way through which investors tend to preserve their capital against inflations and to make passive income is to purchase shares of different companies. This is known today as stock trading. The stock market provides a uniform ground for companies to list their stocks through an initial public offering (ICO) designed to attract investors to invest in the company’s growth by purchasing their shares.
Similarly, one can trade stocks from the comfort of their homes using stock brokers. Those living in the UK can do so for instance using UK stock brokers.
Is the stock market headed for a crash in 2023?
Almost all the stocks traded on the stock market today have underperformed in 2022 when compared to their past performances in the previous years. Displeased by the poor performance of the stock market this year, many now fear that the stock market might be headed for a crush in 2023.
Well, before anyone would rush to such conclusions, it is very necessary to understand the reason why the stock market has been down in 2023 and the right time to expect a boom in stock prices again.
Stock prices have been affected by the multiple rounds of aggressive interest rate increases done by the Fed in 2022. This is because hiking the interest rates push investors to withdraw their investments in risky assets including stocks and crypto and divert them into less risky investments with higher yields such as buying government bonds, fixed deposits, etc.
Similarly, high-interest rate makes it difficult for companies to borrow funds to expand their business. Virtually, all central banks across the globe had embarked on aggressive interest rate hikes for their currencies raising the interest rates to new levels unseen before.
The Fed for instance raised the interest rate for the US dollar to 4.0% in November 2022 and still hopes to increase it again by December. This makes it all the more difficult for companies to get loans thereby slowing down the company’s growth and development, which affects their stock prices too.
Nevertheless, the stock market is a regulated investment package and less likely to crash any time soon. This differentiates it from other risky assets such as Cryptocurrencies which are largely unregulated. Therefore, we can always hope for the stock market to recover again in 2023 rather than crash as many erroneously suppose today.
Major Factors that move the stock market
- Interest rate: High-interest rate as those seen in 2022 affects the performance of the stock market negatively. Increasing the interest rate makes it difficult for companies to obtain loans needed to carry on with the company’s projects.
- Company’s policy: The different policies embarked upon by a company, often determine whether investors will buy the company’s stocks. Quality policies attract large investors and vice versa.
- Dividends offered: Investors are more attracted to those companies offering high dividends for buying their stocks. The higher the dividend offered, the more investors will be attracted to purchase the company’s stocks.