Washington(CNN) The US stock market is off to a choppy 2022.
Worries about Omicron, inflation and interest rates have spurred a volatile few weeks on Wall Street. The VIX (VIX), a measure of market volatility, is up more than 50% this year. And the CNN Business Fear & Greed Index, which looks at the VIX and six other gauges of market sentiment, is showing signs of Fear on Wall Street.
But there are a lot of factors at play, and recent market turbulence shouldn't completely eclipse the very real signs of a healthy economy.
To better understand the stock market's current dynamic, we posed a few key questions to Paul R. La Monica, a digital correspondent for CNN Business who covers the markets and blue chip companies. Our conversation, conducted over the phone and lightly edited for flow and brevity, is below:
WM: The stock market is off to a pretty choppy start this year. Can you explain some of the forces driving the volatility we're seeing?
PL: I think that one of the main reasons why stocks have been so volatile this year is that we're coming off an amazing 2021. And when you go even further back, the market had a good 2020, amazingly enough, despite the pandemic and the brief bear market that we had when stocks plunged in the spring and summer of 2020.
So I think a lot of investors are now just questioning: Where does the economy go from here? Where do big companies go with regards to their sales and profit growth? As we all know, stimulus money has pretty much run out for consumers. So there are questions about what can fuel demand going forward. And that, I think, has a lot of people questioning whether or not stocks need a bit of a breather.
WM: Do we see this kind of volatility in a normal stock market cycle, or are we in more uncharted territory?
PL: This, I think, is healthy and normal to have this type of volatility. What is not normal is when stocks go up in a somewhat uninterrupted fashion with very few blips or what they call on Wall Street "a correction," which is a 10% pullback from a recent high. Corrections happen all the time in bull markets, and they're healthy. To use poker terminology, it's something that can sometimes flush out the weak hands. People that might have been riding the momentum will fold and get out and we'll have buyers come in at lower prices and stocks go back up. So I don't think that what is happening right now is unusual or something to be worried about.
It's actually something that is healthy and can hopefully lead to more sustained gains going forward. What no one wants is a huge run up that is unsustainable, and then you have a major epic collapse like what we had in the late 1990s, early 2000 or 2008 during the great financial crisis. No one wants to repeat that scenario.
WM: It's interesting to hear you talk about the term "market correction" as something that's healthy and actually quite normal.
PL: The term is in some respects unfortunate because correction obviously implies from its definition that there was something wrong that needed to be corrected. Maybe average investors should think about it more as just kind of a pause and a refresh, because it's not necessarily an awful thing to have these market pullbacks that bring stock prices to more reasonable levels.
And again, just because stocks pull back 10 to 15%, that's not a guarantee that they're now going to all of a sudden fall more than 20% into what people call a bear market, which is typically a much worse environment for investors to be in. But I think the other thing to remember, depending on your age and the tolerance you have for risk, if you have a very long-term horizon, like if you are investing for the long-term future -- especially if it's retirement -- you can afford to ride out these waves.
I mean, if you're someone who's been around long enough that you were invested in the late 1990s and you saw the 2000 crash and then the 2008 crash -- if you didn't panic and you held steady, as long as you were in diversified stock funds -- you probably have more money now in your retirement account than you did 20 years ago. But I realize that it's not always easy to take the long-term view when things seem like the sky is falling, which is not the case right now by the way.
WM: Is there a reason that these Big Tech stocks in particular have been hit so hard this year?
PL: It's a bit of a mystery in some respects, because a lot of people have been conditioned to think that larger companies will be a little less volatile and not subject to the types of swings that you see in the "meme stocks" -- your GameStops and AMCs of the world. But we've had such volatility with a company like Facebook, now known as Meta, that plunged after its earnings report. And I think really what it all comes down to is that when expectations are almost universally for one thing to happen, and then that doesn't happen and everyone is wrong, it catches everyone off guard. For an example like Facebook, I don't think Wall Street really, truly understood how much money Mark Zuckerberg wants to be spending on this shift to the "metaverse" and virtual reality and how much that might hurt the near-term numbers for the core Facebook, Instagram, WhatsApp business.
But I think the thing that investors also have to remember -- and we sometimes as journalists in the financial community do a disservice, I think -- lumping everything together as "Big Tech," "FAANG" (the stock of the top-performing American tech companies), sometimes does a disservice because, yes, Facebook, had a lousy quarter, but Apple had a phenomenal quarter. Amazon had a great quarter. Google, whose owner is Alphabet, is also doing extremely well. So Facebook and Netflix are struggling right now, but the three other FAANG companies are doing well. And it just goes to show that every individual tech company has its own unique competitive concerns right now and things they're dealing with from an economic landscape that you can't really just say, "Oh, well if Facebook is doing poorly then that must mean Apple and Amazon and Google are as well," because it's not the case.
WM: I want to ask about the January jobs report that was quite surprising, and specifically what it means for the Federal Reserve and interest rates?
PL: Yeah, the January jobs numbers were much better than expected, particularly because we had another report come out from a private company, ADP, that looks at just private sector jobs, not including government jobs as well. And ADP just a few days before the government jobs report said that there were job losses. And I think right now, because of what's going on with the pandemic -- what's going on with even things like the weather sometimes impacts the survey results -- we had a very confusing jobs picture in that the January jobs report was much better than expected.
The revisions for the prior two months also were revised higher. So there were a lot of concerns about slow jobs growth in November and December, and once the government went back and looked at the numbers more closely, it appears that more jobs were added in those two months than previously reported.
So long story short, what this means for the Fed -- the Federal Reserve realizes that the economy is getting back to a normal growth trajectory after Covid. And I think the Fed recognizes that there's not as much of a need to keep the interest rate level at zero for an indefinite period of time because the risk is that if you keep rates too low for too long, you could wind up having bubbles form in the stock market, the housing market, other parts of the economy, and that ultimately winds up being more of a problem going forward when you have a huge crash if a bubble bursts. So I think the Fed is going to try and slowly, gradually raise rates this year, probably several times and probably more than people expected at the end of last year because the economy seems to be in better shape than people had given it credit for.
WM: What are you going to be looking at in the next few weeks in terms of the economy and the stock market?
PL: For the most part, most major companies have already reported their earnings for the fourth quarter and given some sort of 2022 outlook. So I think now we just really have to look more closely at economic data -- some of the inflation figures that will be coming out in the coming weeks, we'll get monthly consumer price reports from the government -- and I think that is going to be the key for what the Fed is likely to do, and where the economy might be going because I think the hope is that inflation pressures will cool as the year progresses, because the good news in the last jobs report is that wages grew pretty sharply. But even though they were up about 5.7% year over year, that's still below the 7% or so rise in consumer prices that we had in the last consumer price report.
So I think a lot of consumers right now -- it's understandable why people aren't as confident about the economy as you would expect from the data because even though wages are going up, they're not keeping pace with prices. There's a lot of pressure on consumers right now, and even though wages are going up, everything else is going up at a quicker pace.