Should we be preparing for a stock market crash in 2022? For nearly two years, stock market gains have been unprecedented due to the Fed-induced rally. Now that the US is near full recovery in the jobs market, investors are looking towards a more hawkish stance in monetary policy. Tapering has already begun, and soon enough, interest rates will rise. Investors expect three hikes this year just as the Fed signaled, but nothing is certain yet. Should the Fed stop purchasing assets and start raising interest, everyone is debating whether or not to be ready for another stock market crash or correction while the Fed steps out of the market.

Scenarios For A Stock Market Crash in 2022

Just as we discussed earlier, a rate hike will probably be bearish on stocks as investors might find more value in higher treasury yields. Without any fuel from the Fed, the natural market might stumble without its monetary backbone that held it in place for so long.

Additionally, if jobs data keeps missing expectations like we saw in November and December, we could be looking at a slowing economy. This will only add to the pressure on stocks as demand for risk-on trades will fade.

Omicron and future variants could topple the economy if the strains get more contagious and more severe. The fear of another government shutdown is still in the backs of our minds too. Up until March, the markets may just be choppy. This means technical analysis is much less effective with neither a bullish or bearish direction.

Scenarios Against A Stock Market Crash in 2022

One major driver of the stock market is earnings. If companies that are making money can continue to make money, we might be looking at higher stock prices. This year was projected to be a heavy growth year as well, so small caps could be on the rise should they demonstrate large growth. 

Despite the Fed’s statements, there is a possibility that they decide to hold off on three hikes in 2022. Because jobs are slowing, the Fed might take a step back and reconsider three interest raises. If interest rates are rising but at a slow pace, yields may still be stock-friendly as the amount of interest does not outweigh market gains. 

Overall, no one really knows what is in store for us this year, but a crash seems unlikely after considering all these factors. That is because each variant seems to be weaker than the last, earnings growth is still strong, and the rate hikes discussed still seem that they wouldn’t hurt the market too badly. However, we still might see further correction in the meantime, and this year may even be flat for the most part. But a 20-30% crash like in 2020 seems unlikely.

SPX500 Setups

Here on the daily timeframe, we see two hard rejections from the lows while price sits near support around $4718. If today’s candle can close with a bullish hammer formation, we could see a day in the green tomorrow. If not, it looks like price can find some heavy support on the two rising trend lines below.