Markets Down 19% or More in 2022
2022 was a tough year for investors. After the broad market rose 25% in 2021 investors were looking forward to a continuation in 2022. Indeed the market rose on the first two trading days of the year... but then it started falling. It never regained its highs. As the chart below shows, the S&P 500 Index finished the year 19.2% below its start (3849.28 vs. 4766.18).
I've quipped before that The Market Is Not The Economy. Well, any one market index is not even the whole market. I consider the S&P 500 the most representative for discussing overall market trends. Other indices out there are the Dow Jones, Nasdaq composite, and Russell 2000.
The Dow Jones Industrial Average- "The Dow" or DJIA for short- gets a lot of attention in daily news coverage. It's not a great representation of the market because a) it includes only 30 stocks, unlike the 500 in the S&P 500; and b) it uses a simplistic method of "price weighting". These extreme simplifications made sense in the late 1800s (!) when the index was created but are way out of date today. Yet news organizations continue to report it thousands of times every day because... well, tradition. The Dow dropped 8.8% in 2022. That would seem to be rosier news than the S&P's 19.2% drop, but as I said, it's not broadly representative. That's just what's happened with the share prices of the few largest companies.
The Nasdaq Composite dropped 33%. Ouch. That index includes a lot of stocks, all ~3,100 that are listed on the Nasdaq exchange. And unlike the Dow it's weighted by market cap rather than share price, meaning the biggest companies have the most impact on it. The Nasdaq exchange is very tech-heavy, though, so it's more biased to the rises and falls of the tech industry.
Of the four indices I've named in this article the Russell 2000 gets the least attention. It's basically a small-cap index. It's compiled by taking the larger Russell 3,000 index and considering only the 2,000 smaller market-cap companies in it. That makes it a good counterpoint to the S&P 500, which is all large-cap companies. The Russell 2000 is down 21.5% for the year. That's closer to the S&P 500's 19.2% drop than the other two indexes, and it aligns with what I've experienced over the year as an investor: most companies are down for the year, and small- and mid-cap companies have had it worse than large-caps.
I've quipped before that The Market Is Not The Economy. Well, any one market index is not even the whole market. I consider the S&P 500 the most representative for discussing overall market trends. Other indices out there are the Dow Jones, Nasdaq composite, and Russell 2000.
The Dow Jones Industrial Average- "The Dow" or DJIA for short- gets a lot of attention in daily news coverage. It's not a great representation of the market because a) it includes only 30 stocks, unlike the 500 in the S&P 500; and b) it uses a simplistic method of "price weighting". These extreme simplifications made sense in the late 1800s (!) when the index was created but are way out of date today. Yet news organizations continue to report it thousands of times every day because... well, tradition. The Dow dropped 8.8% in 2022. That would seem to be rosier news than the S&P's 19.2% drop, but as I said, it's not broadly representative. That's just what's happened with the share prices of the few largest companies.
The Nasdaq Composite dropped 33%. Ouch. That index includes a lot of stocks, all ~3,100 that are listed on the Nasdaq exchange. And unlike the Dow it's weighted by market cap rather than share price, meaning the biggest companies have the most impact on it. The Nasdaq exchange is very tech-heavy, though, so it's more biased to the rises and falls of the tech industry.
Of the four indices I've named in this article the Russell 2000 gets the least attention. It's basically a small-cap index. It's compiled by taking the larger Russell 3,000 index and considering only the 2,000 smaller market-cap companies in it. That makes it a good counterpoint to the S&P 500, which is all large-cap companies. The Russell 2000 is down 21.5% for the year. That's closer to the S&P 500's 19.2% drop than the other two indexes, and it aligns with what I've experienced over the year as an investor: most companies are down for the year, and small- and mid-cap companies have had it worse than large-caps.