What's up grandma's guys here, so it's official, the market makes absolutely no sense. Tesla beat earnings and, as a result, they drop the us gdp topped expectations and shortly after the entire market falls, even gold, which typically does well in times like this, is going down. Alongside with everything else, it's almost as though up is now down left is now right and the only people making money are selling nfts. So that lends the question with the stock market trading sideways and acting unpredictably.

Are we closing in on the stock market bottom or is the market about to drop again now that the federal reserve is planning to raise interest rates in less than 60 days to figure this out? I'm gon na dust off my crystal ball and we're going to talk about all the reasons why the stock market should, in theory, continue going down and then we'll address the counter arguments as to why the stock market should, in theory begin to go back up and Listen i'll tell you up front, i'm not gon na lie to you and pretend, like i know, what's gon na happen or be like jim cramer, who tweets by netflix right before it has its worst day in a decade. Instead, i'm going to give you the full spectrum of both sides of each argument, tell you what i think and then i'll. Let you come to your own conclusion. So with that said, make sure to subscribe, if you're not already subscribed, feel free to comment down below.

Let me know if i missed any points, big, thank you to roman for sponsoring this video and, let's begin so, it's a quick backstory. I think it goes without saying that we've seen a pretty turbulent time throughout these last two months, like in december of 2021, the market hit all-time highs and then the s p 500 began falling to its worst january ever in history, with a drop of nearly 10. That would officially mark a stock market correction. This comes at the same time that our economy grows beyond our wildest expectations.

Unemployment is at the lowest level in decades, and here's the kicker low interest rates are beginning to come to an end for those who didn't have a chance to watch or listen to the most recent two hour, long federal reserve meeting. Not to worry, i got you covered with a 24 second long summary that explains everything you need to know, because this partially explains why red is the new green one. The fed is planning to end their bonded mortgage buying program in march 2022, thereby injecting less money into the economy. Two beginning in march, the fed is planning on an interest rate hike of at least a quarter of a percent, but it could be as high as a half a percent all because of three inflation.

They were quoted as saying that december's inflation is about the same or worse, meaning if it's much higher than seven percent they're going to have to resort to extremes to bring that back down. But where most people want to focus. Right now is the stock market, which makes sense, because watching these markets is like watching a game of ping pong back and forth where one hour it's up, then another hour, it's down, and now it's back up. But by the time i post this video it's down again, which leads a lot of people to wonder how long is this going to go on for and did we potentially just see the bottom, so here's some of the reasons why it might continue to go down.

First, we have high inflation. The issue we have today is that supply chain bottlenecks lead to less inventory, which leads to higher prices, which gets passed on to the customer. Who now needs to make more to pay for those higher prices, which means even higher costs need to be factored in. Restarting the process all over again.

That, of course, leads to more action from the federal reserve whose job it is to prevent our economy from turning into zimbabwe, but there's also another side effect of inflation, and that's the fact that, as prices go up, consumer purchasing power goes down and therefore they buy Less that leads many people to believe that inflation on its own is enough to cause the stock market to continue falling and in terms of history. As you can see right here, we have absolutely no idea what we're looking at, no seriously from all the data that i could find. There is no direct affiliation between inflation and stock market performance. However, higher inflation does lead us into number two, and that would be higher interest rates.

Unfortunately, the federal reserve does not care that your tesla call options are 30 in the red and since their main concern is maximum employment and 2 inflation they'll need to raise rates at some point to curb demand and, as a result, the stock market falls. Why? You ask - or i guess why do i ask well think of it this way when interest rates are zero and inflation is high, the only place that people could get a meaningful return on their money is by investing it in either real estate or stocks. But when interest rates rise and all of a sudden investors have the option to earn two percent in a savings account three percent than a treasury bill or five percent in a low-risk bond. There's less of a need to invest in companies who value themselves on their future growth potential and, as a result, the prices on those growth stocks tend to fall.

In fact, as we can see over time, as rates rise, a large portion of the market begins to sell off with tech stocks. Having seen a meteoric rise from a worldwide shutdown, they tend to suffer the faster rates increase. Third, we got slowing demand and growth. The fact is during a shutdown where people had a lot of time to stay indoors and use technology.

Those numbers soared: netflix saw record sign, ups, applesauce surged, new phone sales zoom an unprecedented increase, but is that actually sustainable? The outlook now? Is that most likely? It's not apple recently said that their demand is slowing down along with netflix and peloton, which doesn't need an introduction and globally demand is expected to be much less than it was previously. All of that is just a fancy way of saying we're unlikely to see that explosive type of growth in the future absent of a worldwide pandemic. And when you compare the returns of today with one to two years ago, you might be disappointed to see their less grand than they have been. And fourth, we have a mixture of record high consumer debt record high housing prices, a pre-pandemic savings rate and a bleak forecast throughout the next year that continues to bring prices down.

I think the sentiment seems to be that people have already invested what they could into the markets. They've already bought all of their subscriptions they've made all of their discretionary purchases. So, what's left to look forward to, however, that is only half the story and it wouldn't be fair enough to share the counter arguments to all of this and why maybe we're at a stock market bottom and things could begin to go up, although before we go Into that i want to say a huge thank you to the sponsor of today's video roman they're, a digital health clinic for men, and they specialize in daily nutritional supplements to help your body perform at its best. After all, it's the new year.

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When you go to getroman.comgram, just go to getroman.comgram to get 15 off your first order, plus free two-day shipping or use the link down below in the description. So thank you guys so much now with that said, let's get back to the video all right. So, in terms of the good news to counteract the previous claims, here's some of the reasons why the stock market could actually be at a bottom and uh. Dare i say it start to recover number one is slowing inflation see.

What many people forget is that, in order to see sustained inflation, those increases need to be the same each and every year, which realistically is not gon na happen. Just consider this. If prices increase from a dollar to a dollar and six cents, that's six percent inflation. In order for us to see extreme inflation continue that dollar and six cent item would have to increase to a dollar twelve in the second year, a dollar nineteen in the third year, a dollar twenty six in the fourth year and so on.

If something like a six percent inflation rate is going to be persistent and we could all admit the federal reserve is not exactly the most reliable, but even they think that inflation will begin to slow down throughout the next year and they hope to see 2.3 inflation. In 2023 and finally, back down to 2.1 percent inflation in 2024., as far as whether or not that actually happens is anybody's guess, but expecting to see, inflation like this consistently is still rather unlikely. On top of that, the wealth of common sense blog broke down the years of highest inflation since 1940, and they found that during the years of highest inflation, stocks actually wound up increasing by an average of 9.4 percent. Two raising interest rates might not be so terrible.

Yes, it is true that rising rates tend to suppress stock values, but that's not necessarily the case for the entire market. In fact, historically, as you can see, higher rates are correlated to higher prices for banks, energy, the automotive industry and transportation. In addition to that, since 1994, it was found that the first interest rate hike led stocks to increase an average of 7.3 percent in the following 12 months, and jp morgan pointed out that from february 2009 on the s, p, 500 and 10-year treasury moved together. Until the tenure rises to three and a half when the two diverged, the reason for this is that generally rates are only increased during a healthy growing economy that could handle a rate hike.

So in a way the stock market would benefit from that type of optimism. Three potentially small cap stocks could predict the market bottom. As of today, the russell 2000, which encompasses 2 000 small cap stocks throughout the us, entered a bear market down more than 20 from its recent peak in november, with the average small cap down 40. In this case, some believe that small cap stocks are kind of like the canary in the coal mine.

Will they typically move ahead of the index, while other larger companies tend to eventually follow throughout the last five days, the price is relatively bottomed. Returning back to its average p e ratio, suggesting that we could soon see a floor throughout the rest of the markets as everything else catches up, four most of the bad news could actually already be priced in. I think most investors have already accepted that we could see four or more rate hikes in 2022. We already know inflation is really high.

We can already expect that consumer demand is going to slow down, so none of this should come as a surprise as business insider quoted. We'll know when we hit a bottom when seller exhaustion kicks in and stocks stop going down on bad news, because there's no one left to sell them. It's still very much unclear whether or not that point has actually come, but with a lot of pessimism in the markets. More of it might be priced in than we think and fifth, because there's a lot of people thinking that things are going to get worse.

I tend to anecdotally believe that the more people believe it the less likely it is to happen. That's because, if everybody believes the market is going to behave in a certain way, they're all going to take the precautions ahead of time. That would prevent that from happening. It's like, if i told you, you were 100, not going to smash the like button for the youtube algorithm, even if i say this you're still not going to do it.

Well, guess what now that you know you're not going to do it, you could go ahead and do it and then prove me wrong anyway, in this case, if people have the expectation that the market is going to continue falling they're not going to sell off anything, They wouldn't have already sold off, and that, of course gives the markets room to go back on up. So here's what i think short term betting either way is going to be the equivalent of flipping heads or tails. No one knows the full scale of what's to come if it's better than we expect or if it's worse than we expect and i'm sure half the people out there making these predictions are going to come forward and say i was right, even though the market just So happened to have worked in their favor, that's not to say that we can't take economic data analyze it and then come to a reasonable conclusion. But at the end of the day, we have no idea how the markets are going to react or if things might begin to go back up, but also, let's be real.

If you own stocks right now - and you don't plan to do anything with them for another decade or two, then why would another 20 drop even matter? You should see this as a black friday sale to be able to continue to buy everything at a discount? If anything, it works in your favor, because you're able to earn more money to buy in at lower prices. It's like if i see a sale at the grocery store on their eggs. It's not like i'm gon na think to myself. Oh crap, i've overpaid for my eggs.

I should have waited to buy them this week when they were 20 cheaper. Oh no, i better get rid of the eggs. I have right now! No, if i see that i just think oh great, i could buy more eggs. Now and i'm getting a discount on something i would have bought anyway.

Well when it comes to it, investments are the exact same thing. That's why i've never understood why people panic so much of the markets or they think it's going to be this apocalyptic scenario that we could never recover from, because history has shown us time and time again, that's not going to happen. Instead, i would focus on the things you directly control and ignore the things you can't here's what you cannot control what the stock market does tomorrow, how long things will last when the bottom of the market will be what will happen to the us economy and whether Or not, i ask you to subscribe if you haven't done that already. On the other hand, though, here are the things that you can control, whether or not you choose to subscribe, whether or not you cut back on unnecessary spending, whether or not you live below your means, whether or not you invest consistently long term, whether or not you Pay down any high interest rate debt, you have whether or not you have a six month emergency fund, whether or not you're, over leveraged with your investments.

By focusing on what you can control and disregarding everything else that you can't you give yourself much greater power to take advantage of these opportunities long term without concerning yourself about whether or not the markets will go up or down in the short term or whether or Not you already subscribed, i'm going to ask one more time. If you haven't already subscribed, you may as well do that because it's free, so thank you guys so much for watching also feel free. To add me on instagram and on my second channel. The graham stefan show i post there every single day - i'm not posting here.

So if you want to see a brand new video for me every single day, make sure to add yourself to that and, lastly, speaking of all of these stocks, if you want a free stock, that's now worth all the way up to a thousand dollars use the Link down below in the description and sign up for public using the codegram, you may as well do that it's pretty much like free money feel free to use it. Thank you so much for watching and until next time.