The S&P 500 recorded its worst month since 2022, shedding 5.8 percent in March. Why? Analysts have cited higher tariffs, weaker economic growth, and more significant inflation than had been assumed at the start of Trump’s second term.
What happened in 2022 that caused a similar downturn three years ago?
The perfect storm of aggressive monetary tightening, persistent inflation, geopolitical conflict, supply chain disruptions, and recession fears combined to make 2022 one of the worst years for Wall Street since the 2008 financial crisis.
Monetary Tightening
After maintaining a zero interest rate policy in 2021, the Federal Reserve raised interest rates 11 times beginning in March 2022, resulting in the highest nominal interest rates since the 2000s.
- Companies reliant on cheap financing (particularly technology firms) faced higher borrowing costs, limiting their growth potential.
- Investors who had leveraged their positions with low-interest loans faced margin pressures as the cost of borrowing rose.
The 2021-2023 inflation surge peaked in 2022, becoming a primary concern for policymakers and investors. This inflationary environment eroded consumer purchasing power, threatening corporate profits.
Russia-Ukraine War
The Russian invasion of Ukraine in February 2022 sent shockwaves through global markets and exacerbated existing economic challenges. The conflict’s impact included:
- Severe disruption of global commodity markets, particularly for energy, grain, and metals
- Acceleration of inflation pressures worldwide
- Increased economic uncertainty and market volatility
The World Bank reported Ukraine’s economy would shrink by 45% in 2022, while Russia’s output was projected to contract by 11-12%.
GOOD NEWS: The marker eventually recovered, reaching highs in 2023 and 2024.