‘A recession in the next 12 months is not in our base case’: Stocks had a rough week. Smart investors are focusing on the long game


The stock market ended a volatile week on Friday with a sad note, with three major US indices collapsing as investors soared over concerns such as inflation, the Fed’s fight against it and fears of a recession. hard.

As confidence also hit, financial experts advised investors not to get excited, but to think about long-term strategies.

The Dow Jones Industrial Average DJIA,
-2.77%
it ended with a drop of 981 points, or 2.8%, to 33,811.40. Friday’s performance was the worst daily percentage drop in the index since Oct. 28, 2020, according to Dow Jones Market data.

Meanwhile, the Nasdaq COMP Composite Index
-4.17%
it was down 2.6%. The S&P 500 SPX,
-3.63%
lost 2.8%, suffering its worst start to the year, in the first four months of 2022, in more than 80 years.

Of course, some exploding retail investors may have already said that’s where things have gone.

Nearly 44% of people say the market is moving in a bearish direction, according to the latest weekly sentiment indicator from the American Association of Individual Investors. This is almost 14 percentage points above the historical average of 30.5% of bearish sentiment in the ongoing follow-up.

On the other hand, almost 19% said they were optimistic the week ending April 20. This is an increase of 15.8% read a week earlier. But it has been May 2016 since the upward sensation in the ongoing follow-up has not exceeded 20% for two weeks in a row.

Meanwhile, six out of 10 investors predict an increase in market volatility and seven out of 10 say they are worried about a recession, according to a Nationwide poll released earlier this week.

In the same survey, about four in 10 investors (44%) said they felt more confident in their ability to protect their finances in any coming recession and 38% said they felt confident in their ability to invest in the stock market.

It’s not like retail investors have any monopoly on market vision. Investors withdrew $ 17.5 billion from global equities over the past week, according to Bank of America. This outflow is the most important weekly move for this year’s outings, they noted.

The difference is that regular investors who are newer to the markets, and may have started during the pandemic, may not have the same resources or risk tolerance to keep their stomachs up during unstable times compared to more sophisticated investors or institutional investors. .

This is where it is important to breathe and avoid doing drastic things, experts say, especially with the ongoing recession conference.

First, there is the short-term story.

“While sustained inflation and a more aggressive Fed are a risk to the economy and financial markets, a recession in the next 12 months is not in our case,” wrote Solita Marcelli, chief investment officer. for America by UBS Global Wealth Management.

The economy may grow even with the series of rate hikes investors are preparing for, and first-quarter earnings results have been “generally good,” Marcelli said in a note.

In general, there is an exception, such as Netflix NFLX,
-4.59%
A net loss of 200,000 subscribers was reported this week when analysts expected an addition of 2.5 million subscriptions.

Plus, there’s a long-term story to remember. Think big and think about the long game of investing during falls and volatility episodes, said Scott Bishop, executive director of wealth solutions at Avidian Wealth Solutions, based in Houston, Texas.

Retail investors ’mood swings expressed in polls and sentiment followers match what they are hearing from their customers right now.

However, Bishop says that if people think it’s time to adjust strategies or reduce losses, “it’s time to tweak your portfolio. You shouldn’t make wholesale changes.” For example, this means that it could be a time to reconsider allocations, to have losses for the collection of tax losses. “If you invest your portfolio based on headlines, you will always lose,” he said.

The pandemic seems to have spread much further, but only about two years have passed since the bottom of the COVID-19 market. Then there’s the second part of the story for people who hooked the market instead of charging.

At a time like this, it’s definitely worth remembering the next chapter of this story, Bishop said. Ultimately, the people who experience the most financial pain are those who “take extreme actions, binary actions, whether I’m in or out.”



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