In 2022 the U.S. stock market has been on a sharp decline compared to 2021. There have been signs indicating that a recession is near and the early part of this year suggests this is the case.

The stock market has been hit hard for the start of 2022. The Dow Jones is down 5% year to date and the S&P 500 is down 5.96% year to date.

One of the factors causing the market to dip is inflation fears. According to Jerome Powell, the Federal Reserve Chairman, “The labor market is very strong, and inflation is much too”. Inflation is trying to be controlled but it comes at the market’s expense for the start of 2022.

Powell states, “the Fed will continue to hike rates until inflation comes under control, and could get even more aggressive than last week’s increase, which was the first in more than three years”. The market already reacted to last week’s increase so if it continues to be aggressive on inflation we could see a longer market decline.

According toBlackRock “it’s been one of the worst two months to start a year on record”. Other than just inflation causing the market to decline, the Russian Ukraine war is also making an impact. “As geopolitical tensions mounted and Russia invaded Ukraine, international ex-U.S. equities and fixed income, which had been outperforming their U.S. counterparts year-to-date (although still negative), quickly reversed.” 

According to Kristin McKenna a certified financial planner “The benefits of diversification became much harder to see year-to-date as global asset classes have suffered very similar losses”

The year has started rough but according to McKenna “In the top worst starts to a year in history, only twice were stocks down overall to end the year.. This is another reason why it’s important to stay invested and not try to time the market”. 

Also according to McKenna, “Investors should brace for more volatility in the weeks, perhaps months, to come. While it’s never fun to see your portfolio lose value, it’s a necessary reminder that stocks don’t only go up. Thankfully, over the long-term, the good years have far outweighed the bad ones”.

The stock market will be volatile for the year to come as the inflation and the Russia conflict continues to rage on. In the coming months, we will see if the market turns a blind eye to these problems or if they continue to pull the market down.