5 reasons why the current market turmoil shouldn’t rattle you
Right now, just one look at stock market indices can be enough to keep you up at night. the S&P 500 Index recorded its worst performance in two years on Wednesday. And the S&P 500, the Dow Jones Industrial Averageand the Nasdaq each slipped 3.05%, 2.9% and 3.82%, respectively, this week.
It’s completely normal to be a little nervous at times like this. But before you consider selling your worst performers or committing never to buy another stock again, wait. There are actually five good reasons why the current market turmoil shouldn’t rattle you.
1. Current losses are due to temporary external factors
One of the biggest worries for investors today is high inflation – and the idea that interest rate hikes to calm inflation could lead to a recession. Today, rising inflation is proving particularly difficult for retailers. Big names like Target (TGT 1.26%), Amazonand walmart are struggling with higher prices. And in many cases, there’s only so much they’re willing to pass on to the consumer. For example, in this week’s earnings report, Target said, “While we face multiple cost pressures, our team is working tirelessly to maintain pricing where possible.”
Shares of these companies have fallen as rising inflation weighs on earnings. And the general environment of inflation and rising rate concerns dragged the general market down.
But here’s the good news. High inflation and economic difficulties are temporary problems. And they are external. It’s something companies are struggling with right now. But these problems will not last forever. And, being external, they do not reflect a weakness in a company’s business. This brings me to the next point…
2. Some of the biggest declines still have strong businesses
As mentioned above, businesses are now facing higher costs. And companies in certain industries like consumer goods are also hurting because buyers are spending less. The consumer, too, feels the effect of inflation.
These elements are painful in the short term. But here’s a reason to be positive: they don’t change the long-term prospects of some companies. I will again use Target as an example. Today, Target shoppers are opting for essentials instead of higher-margin items like clothing. But the key point is that they still buy from Target.
In medical devices, Stryker Corp. expects inflationary pressures from commodity shortages to persist throughout the year. But on the fourth quarter earnings call, Stryker said, “We believe underlying demand for our products remains strong.”
Businesses with strong infrastructure, cash levels to weather tough times, and customers to purchase their products in the future will eventually recover.
3. Today’s lows create buying opportunities
Many solid companies have seen their shares fall in recent weeks. These include companies that have seen declining profits as well as those that continue to show strong growth. And that means their prices to forward earnings estimates have also fallen. This is particularly the case in the world of consumer goods. Examples include Nike, Etsyand Home deposit.
And that equates to a buying opportunity. A company with a strong earnings track record and bright future prospects is likely to win in the long run. For those currently struggling due to inflation, earnings and share price should recover once today’s external issues ease. This means now is the time to shop around for these types of players. The idea is to buy and hold for at least five years to benefit from a rebound and additional growth.
4. You haven’t lost if you haven’t sold
If you’re studying your portfolio today, you might be more than a little worried. You might even say something like, “Oh, no! I lost X% of my investment. But always remember: you haven’t lost if you haven’t sold.
Market downturns are the worst possible time to sell. In these tough times, it’s crucial to stay calm, reflect on why you invested in the particular stocks in your portfolio, and remember that those things probably haven’t changed. If a company is a market leader or has a strong relationship with its customers, current external pressures won’t change that. Right now, the best thing you can do is stick with the companies you believe in.
5. The stock market is still recovering
It’s important to keep in mind that you might not earn with every stock in your portfolio. This is the case whether the market is booming or plummeting. Investing always involves a certain degree of risk. That’s why it’s a good idea to diversify across industries and, over time, grow your portfolio to include at least 25 different stocks. This reduces your reliance on just a few players and therefore reduces risk.
Overall, investing in solid companies with a proven track record generally leads to success over time. As bad as things may seem today, the market has seen worse: stock market crashes. And he has recovered from these accidents throughout history. So, history tells us that this bumpy period will subside and the stock market will eventually recover – and climb.