If you are one of those amateur investors who checks your 401(k) balance at every meal, today might be a good day to fast.
Stocks had bad days Thursday and Friday. Monday looks to be worse. Global markets plunged overnight, with Japan’s Nikkei 225 index posting the worst one-day return in its history. The losses spread from Asia to Europe, and then to the United States, where the S&P 500 and Nasdaq opened sharply lower.
Market reporters trotted out such terms as “rout,” “correction” and even “panic,” descriptors that invoke memories of the market’s darkest days, such as the brief COVID-19 crash of 2020 and the deeper, longer dive of the Great Recession of 2008.
Though it is difficult to remain cool as the stock market plummets, novice investors should make an effort.
“My greatest advise is to avoid panic. “Really, because you can’t,” said Catherine Valega, a certified financial planner from Boston.
‘Stocks are on sale today’
According to financial advisors, this summer’s stock market downturn is an excellent opportunity to invest.
“Stocks are on sale today, right?” Valega explained. “If you have some cash, let’s go put some money in the market.”
However, this might appear paradoxical.
To an armchair investor, the problem is common and frustrating: we are told to buy low and sell high. When the stock market plummets, your first thought is to sell. However, you are selling at a low price.
The stock market “correction,” in emotionless Wall Street lingo, developed quickly and with seemingly little warning.
Just last Wednesday, Federal Reserve Chairman Jerome Powell ruled out an interest rate drop while assuring the public that the economy was doing well.
That news ricocheted around the globe, seeding Monday’s losses in Asia and Europe. Those losses, in turn, triggered more losses in the U.S.
Market watchers urged consumers to keep a sense of perspective. As of late morning, the S&P 500 was higher than it was at moments in April and May, although that could quickly change. “Short-term market movement can be unpredictable, but over the long term, the trend is up,” said Erika Safran, a certified financial planner in New York. “The irony is that we rush to buy items on sale, but when it comes to investing, when prices drop, the instinct is to sell.” And we’re still talking about one bad jobs report. Right?
A ‘recipe for sudden volatility’
Well, maybe not. The job market was weakening before Friday’s alarming report. Powell cited cooling job data in his news conference Wednesday, listing it as one rationale for the Fed to begin cutting interest rates soon, perhaps in September.
“While Friday’s employment report was disappointing, it wasn’t the only worrisome economic indicator, only the latest,” said Greg McBride, chief financial analyst at Bankrate, the personal finance site.
Combine it with “the cacophony of earnings disappointments and weak corporate outlooks, global unrest and currency gyrations, and you have the recipe for sudden volatility,” he went on.
Just a week or two ago, most forecasts appeared to believe the United States faced minimal chance of recession, a prospect that has hung over the economy since inflation reached a 40-year peak in mid-2022.
However, you will most likely hear the R-word a lot more in the coming days as the stock market crash drives a fresh round of recession warnings.
Not every news is bleak. In one update provided Monday by Wells Fargo Economics, chief economist Jay Bryson expressed optimism, indicating that economic growth will continue.
“Although the risk of recession has risen,” noted the author, “it still does not exceed 50%, in our view.”
Ironically, these uncertain times present lucrative possibilities for those with the time, desire, and courage to grab them. Here’s a few.
Bonds
Bonds tend to provide a nice financial cushion when stocks sink, although the calamitous market events of 2022 prove that the rule doesn’t always hold.
Investment advisers say 2024 is a good time to invest in bonds, given the climate of high interest rates and easing inflation. As a rule of thumb, experts encourage amateur investors to buy stocks and bonds at a roughly 60-40 ratio to maintain a balanced portfolio.
“Bonds are more attractive now than they have been in more than a decade,” Theodore Haley, a certified financial planner in Beaverton, Oregon, said in an interview in July.
Real estate
Mortgage rates sank to their lowest level in more than a year after the weak jobs report. As of Monday, the average rate for a 30-year fixed mortgage stands at 6.95%.
For anyone waiting on the sidelines to buy a house, now might be a good time to enter the market.
“Mortgage rates will drop again today. Homebuyers should start their horses,” Daryl Fairweather, chief economist at Redfin, posted Monday on X