The past week in markets summarized in three short headlines.
1. Mixed Inflation and Mixed Emotions
The major U.S. stock indexes fell around 3% to 4% after two positive weeks in a row. Reports show that investors are still worried about the potential challenges to the U.S. Federal Reserve’s plan to slow the pace of inflation. These reports are primarily based on mixed inflation data that was released this past week. The price of U.S. crude oil continued to fall, around 11% for the week to less than $72 per barrel.
Outside of the country, China’s government eased some COVID-19 restrictions, which had been weighing on the country’s economy. Despite the boost in China’s economy due to the lifting of these restrictions, officials with the World Bank and the International Monetary Fund expressed concerns about a worsening outlook for the global economy and the potential for a recession.
The US is hoping to prevent a recession, as the Federal Reserve is expected to lift its benchmark interest rate for the final time in 2022 at its upcoming meeting. As investors prepare for their holiday break, they’ll be keeping a close eye on inflation and how it affects the price of their presents under the tree.
2. Praying On A Company’s Downfall
Shorting stocks is a way to profit from a decline in a stock’s price. It involves borrowing shares of a stock that you believe will go down in value, selling them on the open market, and then buying them back at a lower price to return to the lender.
If the price of the stock does indeed go down, you can buy back the shares at a lower price, return them to the lender, and pocket the difference as profit. However, if the price of the stock goes up instead, you will have to buy back the shares at a higher price, which means you will lose money.
Overall, shorting stocks can be a risky strategy, but it can also be a way to make money in a falling market. Learning how to short stocks and the general idea around them is an attractive idea for some investors, especially due to recent recession concerns. As companies fall in value, enterprising investors might take the opportunity to profit from their decline.
3. Hedge Funds: One Way The Rich Get Richer
Hedge funds are a type of investment fund that pools capital from high-net-worth individuals and institutions and invests it in a wide range of assets. Hedge funds use a variety of strategies to generate returns that are not typically available to traditional investors. These strategies include short selling, leverage, arbitrage, and derivatives.
Hedge funds are typically managed by a portfolio manager or team of portfolio managers, who are responsible for making investment decisions and managing risk. Hedge fund managers have a fiduciary duty to their investors, meaning they are legally obligated to act in the best interests of their investors.
In a time when rich investors fear recessions will hurt their wealth, a lot of them are turning to hedge funds. By using unconventional strategies that the average investor either doesn’t know about or can’t do, the rich are able to potentially maintain their wealth even as the economy takes a hit.
The major indexes fell this week after two positive weeks, losing momentum as mixed inflation data came out. In a time when a recession could be on the horizon, shorting stocks might be an investor’s go-to move. Those with a high net-worth may also choose to invest their money with hedge funds.