2022 was not a good year for stock investors, or at least for long-term, buy-and-hold investors.

If you are a day trader, you can make money or lose money in virtually any environment. If you trade individual stocks, there is always money to be made (or lost). And you always have the option of shorting stocks as well.

But for the typical buy-and-hold investor who purchases broad-based index funds on the assumption that the stock market always goes up in the long run, 2022 was not a good year.

The technology sector was the hardest hit. The Nasdaq lost about 33% in 2022, which is a massive loss.

Not to get too nerdy with math here, but it is important to realize that you don’t need a 33% gain to offset the 33% loss. You need a 50% gain from here. If you go from 100 to 66.66 (33% loss), you need an approximate gain of 33.33 to go back to 100, which would be a 50% gain from your new base.

Since the Nasdaq was down so much in 2022, some people say it is a great time to buy. After all, it is better to buy when stocks are down.

It is true that it is a great time to buy in early 2023 compared to what it was in early 2022. You get far more shares of stock or index funds for the same price. But just because it is a great time to buy now relative to a year ago, it doesn’t mean it is a great time to buy if stocks could fall more.

The Previous Tech Bubble

History does not repeat, but it can rhyme. So let’s review the tech bubble that happened in the late 1990s and came crashing down in the early 2000s. It’s not to say that today’s market will follow this, but only to show what is possible.

Wikipedia shows the Nasdaq’s performance from 2000 to 2002.

• In 2000, the Nasdaq lost 39.28% of its value (4,069.31 to 2,470.52).
• In 2001, the Nasdaq lost 21.05% of its value (2,470.52 to 1,950.40).
• In 2002, the Nasdaq lost 31.53% of its value (1,950.40 to 1,335.51).

This means, if we were to follow a similar trajectory today, we would be somewhere around the end of 2000, with 2 years of losses still to come.

It is even worse than this if you look at the absolute peak of the Nasdaq, which very briefly went over the 5,000 mark in March 2000.

It is also interesting to note that the recession of 2001 was not considered a severe recession. The financial crisis of 2008/ 2009 is considered to be much worse. After the attacks on 9/11/2001, the Fed injected new money out of thin air, yet stocks continued to fall for another year after that.

Today, we have a highly inverted yield curve, and the Fed is battling the inflation that it created by raising its target interest rate and slowly draining its balance sheet. The recession we have coming will likely be far more severe than what happened in 2001.

The Fed Won’t Save the Stock Market

Some people think the Fed will just reverse course when needed. This may be true. But the Fed will reverse course if there is a major problem in the bond market or if any major financial institutions are facing bankruptcy.

The Fed isn’t going to intervene to save the stock market. The Fed will save the dollar before saving the stock market.

Plus, as written above, the return to a loose monetary policy in 2001 did not stop stocks from falling. They kept going down for another year after 9/11.

So if you think the bear market in stocks is over and it is a good time to buy at these new lows, you may want to think again. We may be only at the beginning of a major bear market in stocks.

Consider that the Nasdaq is still about 11,000 right now. It hit 10,000 in 2020 when we were likely already in a massive bubble. The Nasdaq bubble in the year 2000 hit the peak just above 5,000. We are more than double that number now. Of course, the money supply has gone up a lot since then, but it puts it in perspective.

People who have mapped out their retirement on the basis of buy-and-hold index funds, with the assumption of 8% or more annual returns, are going to be in for a rude awakening if that hasn’t happened already. In addition, they have to deal with higher consumer price inflation than was expected.