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Nobody believed that 2022 would be so bad.
It’s strange that investors should have such a miserable time two years into the Covid-19 pandemic, but we live in unusual times.
Markets have fallen thanks to four-decade highs in inflation and the US Federal Reserve’s dovish response. No major asset class — stocks, bonds, real estate, crypto — has escaped unscathed.
Average investors will have to keep a stiff upper lip until prices return to normal.
“Average investors feel very raw and exposed,” says Aoifinn Devitt, chief investment officer at wealth management firm Moneta. “This has been an absolutely shocking year with no place to hide.”
Still, the general temperature of the economy and the nation as a whole is nowhere near as bad as it was almost 15 years ago in 2008.
Sure, the economy contracted in the first half of the year, but the unemployment rate is very low and wages are rising — even if they’re not keeping pace with inflation. The banking system, for example, is not ready to collapse.
Given the terrible conditions so far, should there be more doom and gloom in 2022? Let’s break down the numbers.
Inflation is worse in 2022
Consumer Price Index (CPI)
This is not a competition: Inflation is much worse today than it was in 2008.
Prices, as measured by the Consumer Price Index (CPI), are rising at their fastest pace since the 1980s, and that’s on top of big gains in 2021. Experts expect inflation to normalize sometime after 2023.
While consumers bear the brunt of higher-priced meat and rents, investors are being flattened by the Fed’s aggressive hawkish turn toward higher rates and quantitative tightening.
This wasn’t a problem in 2008 when interest rates were near zero and the economy was still not growing.
The stock market was worse in 2008
S&P 500 Index
The 2008 financial crisis was punctuated by dramatic moments that highlighted the evolution of the stock market.
Lehman Brothers, for example, collapsed. The CEOs of the country’s largest banks approached the New York Federal Reserve Bank for funding. US Treasury Secretary Hank Paulsen asked House Speaker Nancy Pelosi to help pass a gargantuan bank bailout, the infamous Troubled Assets Relief Program (TARP).
One metric certainly supports the melodrama: 2008 was a much worse year for stocks than 2022. When accounting for inflation-adjusted returns, the S&P 500’s performance so far in 2008 is only about 10 percentage points worse than it was in 2022.
Aside from the numbers, however, 2008 really did feel like the entire financial system was about to collapse. That’s not remotely true today.
The bond market is worse in 2022
Morningstar US Core Bond Index
Fixed income is a different story than the stock market. Bond prices usually move in the opposite direction of stocks — when stocks fall. Bonds have gone up (or much less gone down).
You add fixed income securities to your portfolio to provide ballast. And they largely fulfilled that role in 2008, down just 4%.
That is not the case now. Bonds have taken an epic hit in 2022 thanks to sky-high inflation and rising interest rates. Ultimately, bond investors could benefit from higher yields, but that day has not yet come.
Real estate was worse in 2008
Dow Jones US real estate index
Also in view of this year’s higher inflation, 2008 was significantly more difficult for real estate investors. The 2008 financial crisis was triggered by a real estate market crash, exacerbated by inscrutable financial derivatives that few properly understood.
There is no question that the real estate market is struggling due to rising interest rates and a challenging economic climate as many businesses are slow to return downtown.
Still, today is nothing like 2008.
Gold is worse in 2022
Spot gold prices
In 2008, gold was a safe haven in the storm as stock prices plummeted and the pessimists thought everything was going to hell.
Unfortunately, no such luck in 2022. With stocks falling and prices rising, gold has been a major disappointment as a safe haven asset. This has severely tested gold’s reputation as an inflation hedge.
Bonus Round: Crypto
Bitcoin has been an utter disaster in 2022, with the price of BTC falling more than 60% this year.
Sure, cryptocurrency was just a wink in Satoshi Nakomoto’s eyes in 2008 — though that year’s near-collapse of the banking system was a major inspiration for his life’s work.
Which year was worse for investors: 2008 or 2022?
Judging by our highly unofficial scorecard above, 2022 was worse for investors than 2008 (scoring 3 to 2). One caveat to keep in mind is that every investor’s experience is different and it all depends on the asset allocation of your portfolio.
However, it is impossible to ignore the broader context of both years.
There were times in 2008 when it felt like the entire financial system of the United States, if not the entire world, was on the verge of collapse. Meanwhile, the unemployment rate rose to levels not seen in generations and took almost a decade to recover.
Related: How long do recessions last?
The 2007 housing crisis and the protracted Great Recession were a two-sided economic malaise that ravaged the country. According to the Federal Reserve, median household wealth remains lower than before 2008.
From this broader perspective, investors fared worse in 2008. But 2022 isn’t over yet, and so far this year the news has been bad. So buckle up and let’s hope 2022 ends better than it started.