Key learning points
- A vicious circle: more bad news leads to more market declines, which in turn leads to more bad news and more market declines.
- If an economic report is worse than expected, markets will be upset. The numbers are most important relative to expectations, when there is a surprise, the market gets upset.
- For the people who have been sitting on cash or waiting for the right time to hit the market, a DCA approach is great to look at now.
- Prejudice about recency can hurt you, yesterday’s winner may be tomorrow’s loser, it is not wise not to look at your portfolio and assets now.
The news is bad. If the news is worse than expected, it is very bad. Analysts predicted a bad inflation report, but the actual report was even worse than they thought. This surprised the market and the market hates surprises. We are seeing large declines in the first hours of trading, more than 800 points lower than the Dow Jones.
Today there is a downward acceleration in the market that feels like a terrifying roller coaster decline. If you’re in the market for the downs, you’ll have to sit out for the ups. We don’t know how long it will last and there may be more exciting drops ahead, but if we can sit and ride it out this will end.
What will be the next shoe to fall?
This could be a catalyst that frightens investors and future data reports that come back with bad news and send the market even further down. This could be the acceleration of the downward spiral in a vicious circle for this market. More bad news leads to more market declines, which in turn will lead to more bad news and more market declines. The definition of a vicious circle.
Is this a buying opportunity?
The real investors among us see this fear in the market as an opportunity to buy at a discount. Things are less expensive today than they were a day ago. The concern is that you buy today and things keep falling. The old saying, buying in a bear market is like trying to catch falling knives. You could be injured as long as the blades continue to drop lower on the market.
If you are a long-term investor and you have confidence in the viability of a particular company or index, it may be a good idea to buy these dips in the market. Since the market can continue to fall further down, you can continue to buy stocks at higher discounts, this approach is called dollar cost average (DCA). For the people who have been sitting on cash or waiting for the right time to hit the market, a DCA approach is great to look at now.
There will be more messages about the economic calendar this week. We’ll see the Producer Price Index on Wednesday, the Empire State Manufacturing Survey on Thursday, along with retail sales data from the Census Bureau. On Friday we finally see the Consumer Sentiment Index reported. These reports are on the economic calendar this week and they contain expectations of how bad things are, if a report is worse than expected, the markets will be upset. The numbers are most important relative to expectations, when we are surprised we are upset.
Where are you in your financial life stage?
Analyzing your personal financial situation with all this news, it is important to filter this market environment by your stage of life.
In your twenties, keep your head low, work hard, minimize debt and invest in your 401k and investment account when the market falls. Your time horizon is long, especially for those in their twenties who are planning to retire.
1930s and 40s – you are more settled, you are not a newbie as an adult, try to minimize debt and increase 401k contributions to the maximum. This market decline is an opportunity for you, your time horizon is still long before your retirement.
50s and 60s – it’s real, there is light at the end of the tunnel in retirement. Try to save the maximum in retirement vehicles. Maximize 401ks and additions in IRAs. Understand your lifestyle and how much it costs, try to understand how much income you will need for retirement and match this income with the income you will have from your retirement sources.
70’s and beyond – protect the flip side, you may not buy new stocks like you once were, but income is key. If you are good at cash flow for your daily needs, not much will change for you today. Try to be safe and thoughtful with your investment, tax, and estate planning decisions.
Doing nothing is not a good answer
The past 13 years with the stock market has been a pretty glorious ride up. I still remember March 9, 2009 when intraday trading on the Dow reached 6,500. That was my mental bottom and I made some purchases that day. Admittedly I didn’t hold them long term and sell them too early but that’s a story for another day.
The most notable point here is that many people have become complacent with their investments as the market has been buzzing for over 13 years. The reality is that recency bias can hurt you and adjustments need to be made. Yesterday’s winner may be tomorrow’s loser, it is not wise to ignore your portfolio and assets now. You have to ask the question, “What is my best next step right now, for my portfolio and my stage of life?”
There are tools to help you, there are ways to work smarter with how you hold your investments and make decisions. Investments are a big piece of your financial puzzle and it is a fluid situation with this market but also remember to consider your insurance, cash management, tax planning and estate planning, these may not be urgent like your investments and retirement but they are important too.
Keep calm and invest in…
Be careful not to get caught up in all the sensationalism of the headlines and media buzz. Yes, the economic news was bad today, it may get worse before it gets better, but you know where you are and you know where you are going financially. These market cycles are normal and a normal part of how an economy expands and contracts.
It is also important to have faith in the resilience of companies to find a way to meet a need or sell a product and make a profit. The lower valuations in your investments can be daunting, but check what you can control, find the right fit for your financial life stage and move on.
One way to avoid overreacting on days like today is to take the guesswork out of investing.
Our artificial intelligence scours the markets for the best investments for all kinds of risk tolerances and economic situations. It then bundles them into Investment Kits that make investing simple and – let’s just say – fun.
Best of all, you can activate Portfolio Protection at any time to protect your gains and reduce your losses, no matter what industry you invest in.
Download Q.ai today to access AI-powered investment strategies. When you deposit $100, we will add an additional $100 to your account.