Updated: May 6, 2022
The recent stock market turmoil has created mass anxiety amongst investors across the globe. The S&P 500 is now down roughly 13% from its high at the end of 2021 and has crushed investors portfolios and confidence in the economy. There is certainly a perfect storm of headwinds for the global economy including supply chain issues from the incessant pandemic, rising interest rates to combat the highest inflation rate in 40 years, and a war in Ukraine that has cut off the world's largest country from the rest of the globe. Although these factors have more than enough backbone to them, things could be a lot worse and the Fed Chairman Jerome Powell believes that they can have a soft landing to avoid a recession.
Bear markets, when the S&P 500 falls 20% or more, occur every 3-4 years on average. The average bear market lasts for roughly 9 months. Given the unusual circumstances we are in since the onset of the pandemic in 2020, this is heading towards the 2nd one in 2 years. We aren't quite there yet, but remember the S&P 500 fell 34% in 2020 out of pure panic before the true fundamentals surfaced. Although there are more traditional concerns in 2022, the market has a history of falling like a roller coaster and climbing like an escalator. We have to see the true fundamentals emerge such as core inflation, unemployment numbers, and consumer demand before substantiating this market downturn. We will see in the coming weeks if the recent Fed rate hikes are working and stabilizing inflation while not affecting unemployment. If this is the case, then the market will be oversold as it is pricing in a potential recession. The key is, do not let the rapid decline in the equity markets convince you that it is time to panic and change your strategy. Do not try to time the market as it is like catching a falling knife, stick to dollar cost averaging and you will have a diversified entry point.
Wherever you personally see the market heading, do not panic and do not let your emotions get the best of you. Stick to the same game plan you hopefully have had in place for some time and let this economic cycle run its course.
Disclaimer: We do not offer professional financial advice, only commentary on what we have seen in the market and where we think the market can head.
Note: All investments have the potential to lose significant value, please use caution when seeking investment opportunities.