Top News

‘The recession in the next 12 months is not our basic case’: Shares stopped on Friday. Why smart investors focus on the long game

The stock market ended a volatile week on a gloomy Friday, with three major US indices collapsing as investors became embroiled in concerns such as inflation, the Fed’s fight against it and fears of a hard landing recession.

As confidence was also shaken, financial experts advised that investors should not panic, but instead think about long-term strategies.

The Dow Jones Industrial Average DJIA, -2.82%, fell 981 points, or 2.8%, to 33,811.40. According to Dow Jones Market, Friday’s performance was the worst daily percentage decline since October 28, 2020.

Meanwhile, the Nasdaq Composite COMP, -2.55%, fell 2.6% and the S&P 500 SPX, -2.77%, lost 2.8%.

TGIF, really.

See also: “Waiting for the perfect moment may not be the best strategy”: 3 things investors should do right now that stocks are (falling) again.

Of course, some shaken retail investors may have already said that things are going there.

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% with bearish sentiment in the ongoing monitoring.

On the other hand, almost 19% said they were bullish in the week ending April 20. This is an increase from 15.8% a week earlier. But it is May 2016, when the bullish mood in the ongoing tracker did not exceed 20% for two consecutive weeks.

Meanwhile, six out of 10 investors expect increased market volatility and seven out of 10 say they fear a recession, according to a Nationwide survey 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 impending decline, and 38% said they felt confident in their ability to invest in the stock market.

It is not the case that retail investors have any monopoly on the side of the market. According to Bank of America, investors took $ 17.5 billion from global stocks last week. They noted that this outflow is the largest weekly movement for departures this year.

The difference is that ordinary investors who are new to the markets – and may have started during a pandemic – may not have the same resources or risk tolerance to maintain their stomachs in uncertain times, as opposed to more sophisticated investors or institutional investors.

Here it is important to breathe and avoid anything drastic, experts say – especially with the continuing talk of a recession.

First, there’s a short story.

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

The economy may grow despite a series of rate hikes that investors are preparing for, and the results for the first quarter were “generally good,” Marcelli said in a note.

In general, there is an exception, such as Netflix NFLX, -1.24% reported a net loss of 200,000 subscribers this week, when analysts hoped to increase subscriptions by 2.5 million.

In addition, there is a long story that needs to be remembered. Think big and think about the long game of investing during declines and volatility surges, said Scott Bishop, executive director of wealth solutions at Avidian Wealth Solutions, based in Houston, Texas.

The modest mood of retail investors expressed in surveys and sentiment trackers is in line with what they are hearing from their clients right now.

Still, Bishop says that if people feel it’s time to adjust strategies or reduce losses: “It’s time to make adjustments to your portfolio. You shouldn’t make extensive changes. “This means, for example, that it might be time to reconsider allocations, gain losses for the tax loss harvest.” If you invest your portfolio based on headlines, you always lose, “he said.

The pandemic seems to have lasted much longer, but only two years have passed since the bottom of the COVID-19 market. Then there’s the second part of the story for people who get stuck in the market instead of paying money.

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 action, binary action, I’m in or I’m out.”