“Recession in the next 12 months is not in our base case”: Stocks fell on Friday. Why smart investors focus on the long game
The stock market ended a volatile week on a gloomy note on Friday, with the three major US indexes lower as investors stumbled on concerns such as inflation, the Federal Reserve’s fight against it and fears of a downward recession.
With confidence also waning, financial experts have recommended that investors not panic, but rather consider long-term strategies instead.
Dow Jones Industrial Average DJIA,
It fell 981 points, or 2.8%, to 33,811.40 points. Friday’s performance was the index’s worst daily percentage drop since October 28, 2020, according to Dow Jones market data.
Meanwhile, the Nasdaq Composite Index COMP,
Shrinking 2.6% and S&P 500 SPX,
He lost 2.8%.
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Of course, some already panicked retail investors could have said that’s the direction things are going.
Nearly 44% of people say the market is moving in a downtrend, according to the latest weekly sentiment gauge from the American Association of Retail Investors. That’s nearly 14 percentage points above the historical average of 30.5% on the bearish sentiment of the continuous tracker.
On the other hand, nearly 19% said they were optimistic in the week ending April 20. This is up from 15.8% in the previous week. But in May 2016, the bullish sentiment in the persistent tracker did not exceed 20% for two consecutive weeks.
Meanwhile, six out of 10 investors expect an increase in market volatility and seven out of 10 say they are concerned about a recession, according to a Nationwide poll published earlier this week.
In the same survey, four out of ten investors (44%) said they feel more confident in their ability to protect their finances in any upcoming downturn, and 38% said they feel confident in their ability to invest in the stock market.
It’s not as if retail investors have some monopoly on the side view of the market. Investors earned $17.5 billion in global stocks over the past week, according to Bank of America. They noted that this influx is the largest weekly movement of exits this year.
The difference is that regular investors who are new to the markets — and may have started during a pandemic — may not have the same resources or risk tolerance to keep their stomachs during fragile moments versus more sophisticated investors, or institutional investors.
Here’s where it’s important to take a breath and avoid doing anything drastic, experts say — especially as the slack talk continues.
First, there is the short story.
“While sustained inflation and a stronger Federal Reserve pose a risk to the economy and financial markets, a recession in the next 12 months is not in our base case,” Solita Marselli, chief investment officer for the Americas at UBS Global Wealth Management, wrote.
Marcelli said in a note that the economy can grow even with a series of price increases that investors are preparing for, and first-quarter earnings results were “generally good.”
There is generally an exception, such as Netflix NFLX,
This week it posted a net loss of 200,000 subscribers when analysts were hoping to add 2.5 million subscribers.
Besides, there is a long standing story to remember. Think hard and think the long game about investing during downturns and bouts of volatility,” said Scott Bishop, executive director of wealth solutions at Avidian Wealth Solutions, based in Houston, Texas.
The pessimistic mood of retail investors expressed in surveys and sentiment trackers matches what they hear from their customers at the moment.
However, Bishop says that if people feel it is time to adjust strategies or cut losses, “it’s time to make adjustments to your portfolio. Changes don’t have to be made wholesale.” For example, this means that it may be time to reconsider the appropriations, and take the losses against harvesting the tax losses. “If you invest your portfolio based on the headlines, you will always lose,” he said.
The pandemic looks like it has lasted longer, but it’s only been about two years since the COVID-19 market bottomed. Then there’s the second part of the story for the people who got stuck in the market instead of cashing in.
At a time like this, Bishop said, it’s definitely worth remembering the next chapter in that story. Ultimately, the people who experience the most financial pain are those who “take extreme measures, or take binary measures, it’s me or me out.”