The market can’t seem to find its footing these days.
Yesterday, it felt like the Federal Reserve had nerves under control when the S&P 500 rallied almost 3% in the afternoon, on hints of avoiding mega rate hikes and optimism about the economy. But investors slept on it, and they’re evidently still worried about the Fed’s pledge to hike rates “expeditiously” without committing to an end date. Fears of stagflation are also rising, with the Bank of England warning about high inflation and recession risk.
Right now, the market’s mood is so fragile that one bad headline could break the camel’s back, and the hits just keep coming. Plus, markets are begging for clarity, and while Fed Chair Jay Powell did give up the 75-basis point nugget, he still left a lot of room for interpretation.
As an analyst who still sees promising signs in data, it’s tough to know what to say on days like these. We still think there’s value in this market, but you may have to endure some storms to realize it. Powell was right — consumer and business demand is still strong, and there’s little to worry about in earnings and economic data. But until the market believes this, stocks and crypto may struggle to find a bottom.
Until then, it’s not about thriving — it’s about surviving. And we’ve got a few tips on how to survive this market madness:
Be prepared for all scenarios — not just the obvious ones. A slowing growth and rising rate environment could be a recipe for cheap cyclical stocks, but it’s worth keeping some defensive stocks on hand, should the economy or Fed change course.
Think “now vs. later.” Keep in mind that short-term opportunity could lie in what’s working now versus down the road. When bond yields are surging, they’re increasingly discounting the value of future cash flows. In other words, you may have to wait longer for that growth stock story to pan out.
Manage your risk. If your investments are swinging around, think about what you can do to separate logic from emotion. Re-evaluate buy and sell targets on your investments.
Remember your goals. They determine how much risk you could take on and how long you’re willing to wait this selloff out.
Stay grounded. Nothing lasts forever, and market declines are often opportunities if you’re willing to wait long enough. Since 1950, no S&P 500 drop of 10 to 20% has taken more than nine months to recover.
Long-term, it’s tough to be pessimistic on this market. And history shows that pessimism rarely wins over time. Maybe this washout is just what the market needs to re-focus on what’s important: earnings and economic growth.
*Data sourced through Bloomberg. Can be made available upon request.