The persistence of market volatility is starting to weigh on many investors, understandably. Volatility is almost always unsettling, especially when it is accompanied by worrisome headlines about inflation, a war, Federal Reserve policy, and lockdowns in China.
Investor sentiment surveys showed that by early May, over 50% of respondents were bearish about the market’s direction over the next six months. 26.6% of respondents were neutral, and just 24.3% were bullish. This is what corrections do to investors.1
I’ve been in the investment management business for over 40 years. But over that time, I have found that the more worried and concerned individual investors are, the better of a time it is to buy or hold stocks. Conversely, the more confident individual investors are that now is a great time to buy – with statements like ‘generating strong returns is a sure thing’ – the warier I would be of buying stocks. A good rule of thumb for most investors: try, if possible, to do the opposite of what your emotions are signaling.
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What Can You Do When Volatility and Recession Fears Rise?
In times like this when market volatility is constant and recession fears saturate the media, it is easy to get wrapped in emotional investing, but it’s important not to lose sight of the long-term view. Don’t let media hysteria cause you to make knee-jerk responses!
To help, I am offering all readers our just-released Stock Market Outlook report to help you prepare for more volatility. This report contains some of our key forecasts to consider such as:
If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!
IT’S FREE. Download the Just-Released June 2022 Stock Market Outlook2
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For readers who are feeling the weight of the selling pressure and are having doubts over whether the market or economy will recover, that means trying not to give in now. Stocks are trading at steep discounts relative to where they started the year, which makes a much stronger case for buying stocks than selling them, especially given the solid earnings growth outlook for the year.
To be sure, I am not saying that stocks will surely rally from current levels with no additional downside. No one can know exactly when the correction will end. Historically, corrections have lasted anywhere from a few weeks to a few months, and they consistently rattle investors to the core. Since 1980, the S&P 500 index has experienced an average intra-year decline of -14% – a significant decline! But since 1980, the market has also finished the year in positive territory 76% of the time, underscoring the rewards paid to investors who remain calm and even-handed.3
Inflation and interest rates represent priced-in news, in my view, but a new factor in today’s market is China’s lockdowns, which appear likely to contribute to more volatility in the weeks ahead. China’s economy accounted for 18.1% of global GDP in 2021, and it is responsible for nearly one-third of global manufacturing output. An economic slowdown in China would be meaningful to the world.
That’s why uncertainty over the country’s zero-tolerance Covid-19 policy is rattling markets, in my view. Lockdowns in manufacturing hubs like Jilin province and major cities like Shenzhen and Shanghai have shuttered factories and stores and resulted in a drastic decline in exports. China’s exports rose 3.9% in April year-over-year, a sharp fall from the 14.7% growth rate posted a month earlier.
A slowdown in China’s economic output can have ripple effects across supply chains and on global economic growth in general. Large commodity exporters like Brazil, Chile, and Australia have seen sagging sales in copper, oil, and iron ore to China while manufacturing countries like Germany, Taiwan, and South Korea are worried that China’s significant link in the supply chain will be compromised. U.S. companies sell to China’s market and also import key materials, making just about every developed economy exposed.4
We cannot know how long or how far China’s lockdowns will go, but what does appear clearer is that China’s government will not likely allow a recession. Economic growth is too vital to the government’s stability, and the scenario may be setting up much like the U.S. economy did in 2020 and 2021 – when stalled growth because of pandemic restrictions gave way to surging growth when pandemic risk faded. If that’s the case, and China delivers even a slightly better-than-expected outcome, we could see markets roar back, in my view.
Bottom Line for Investors
Lost in the shuffle of concerns and fears are strong economic fundamentals that still exist in the U.S. economy, which are largely being overlooked today. U.S. consumers continue spending at a strong clip in spite of inflation, corporations are flush with cash and making investments at a solid pace, and the U.S. still has one of the best jobs markets in history—at present, there are roughly two available jobs for every one unemployed person in the country.
It’s also true that over the last 12 months, S&P 500 companies have reported a collective net profit margin of 12.18%, representing the highest after-tax corporate profits relative to GDP that have ever been recorded (records date back to the 1940s).
Generally speaking, these are not the types of metrics that accompany recessions.
At the end of the day, it is important for readers to remember that volatility is the price investors pay in the short term for attractive returns over the long term. The day-to-day ups and downs are sometimes hard to swallow and can trigger emotional responses, but my advice is to try and move past them. Daily moves in the market will not permanently alter a portfolio’s expected returns over the next 10, 15, or 20 years.
With that being said, I recommend that long-term investors do the proper research to protect their investments while the market is down. Try not to worry and exit the market out of fear!
To help guide you, I am offering all readers our just-released Stock Market Outlook Report to help you better prepare your investments during this difficult time.
This report contains some of our key forecasts to consider such as:
If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!
Disclosure