Grin And Bear It
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Did you gingerly peek at your 401(k) retirement account balance recently to assess the damage? Were you afraid to look? Although expectations for stocks this year have been moderate from the start, it’s still hard to stomach a screen of red as a shareholder when you’re used to seeing green.
Last week was the worst performance for the S&P 500 and Nasdaq indexes since the start of the pandemic, and this week we’re yo-yoing and bringing back one of Wall Street’s more macabre terms – dead cat bounce. Fearing rising interest rates and an end to the Covid-era economic support from the Fed, investors are selling and taking their profits. Tech stocks – which tend to be in the riskier “growth” category, since values are based on future profits – is where the jitteriness is most intense. Interest rates rising will make it more expensive for businesses to take loans to fund innovation. Make sure to check-in on the crypto fans in your life because it’s been an absolute horror show for the famously risky and volatile asset. The market lost $205 billion in value in the span of a day last week and around $500 billion has been wiped since the start of the year.
It bears (ha!) repeating: stock market dips and corrections are inevitable as economies go through different cycles and monetary policy changes. As this chart of corrections since 1980 shows, a year later the S&P 500 was higher 90% of the time, rising 25% on average. Experts do warn this plunge may be more dramatic and painful because shares have had an incredible run for so long.
When you see the bear (market) approaching, remember to stay calm and make no sudden movements. The advice usually given to young investors is to stay invested in strong companies, diversify your portfolio with different sectors and assets to protect it from big blows (scroll for more about real estate!), and maintain an emergency fund so that you always have access to cash. You may hear some say “buy the dip.” It’s true that if you’re young and investing for long-term goals, crashes can be a buying opportunity. But it’s impossible to always time the market correctly and know when you’re getting a discount. Dollar-cost averaging is a popular strategy for those worried about navigating such choppy waters. Read more about it here and stay tuned for our breakdown of it in next week’s edition.
News you can use
- Morningstar has released a ranking of the best US-listed sustainable companies to own, noting that the biggest ESG risk is in the energy and utilities sectors, and the smallest is in technology and real estate. Corporate Knights separately published its Global 100 most sustainable list.
- General Motors just announced the single largest investment in its 114-year history: $7 billion to speed up battery cell and electric truck manufacturing. Hopefully EV makers have a plan to cope with lithium shortages, or we may have what’s being called a “great raw material disconnect.”
- Amazon and Meta spent record amounts lobbying the US government last year as Big Tech braced for regulations on issues like antitrust and privacy (the latest effort is making its way through Congress). Interestingly, Amazon, Microsoft, and Alphabet also went on their biggest shopping spree in a decade last year.