I’m undertaking a 1000-day reinvention project, blogging here daily to track my progress. In Monday Money, I write about money management.
I’m looking to 2022 to understand what might happen this year with the stock market. While the situation isn’t exactly the same, there are enough similarities for that experience to be instructive.
Russia’s invasion of Ukraine on February 24, 2022 led to an energy shock, with oil increasing over 50% to reach over $100 a barrel for the first time since 2014. European natural gas prices saw significant volatility, with Dutch gas futures rising by more than 60% in a single day.
Meanwhile, starting in March 2022, the Fed hiked interest rates a total of 11 times, in an attempt to address post-pandemic inflation.
The stock market was unhappy, it dropped almost 20% from its high in January, and was down almost 25% in October.
But you can see from the chart, there were a number of relief rallies during the year. These are short-term temporary increases in stock prices when investor sentiment temporarily improves.
How is 2026 the same and different from 2022? We are experiencing an energy shock because of the U.S. and Israeli attack on Iran, occurring at the same time of year.
But coming into 2026, the economic situation is very different.
Inflation hasn’t reached the Fed’s 2% target, but it is not anywhere near the inflation we experienced after the pandemic.
Then, the economy was running incredibly hot due to COVID-related stimulus. By the end of 2025, the economy looked reasonably good but not overly hot.
Instead of rate hikes, we are looking instead at a pause in any rate cuts.
Yet what we are facing today could be an economic contraction in the near future. Recent labor market data shows a net loss of jobs in some sectors. The unemployment rate is slowly rising. And Moody’s recession model suggests we have a 50/50 chance of a recession in the next twelve months.
What will happen to the stock market? Generally speaking, the equity market struggles in a time leading up to a recession, and the shock of higher commodity prices won’t help. Investors had already started questioning the mega-cap tech companies vast capital expenditures on the AI buildout, and tech shares are way down, even more than the broader market.
2026 could be even worse than 2022, without economic headwinds to create some sense of optimism for the future. 2026 could feature the dreaded stagflation, where growth slows down but inflation remains high. The Fed will face a difficult set of choices should that play out.
Whatever happens, expect relief rallies along the way.