The stock market experienced significant turmoil this week, leaving many investors worried about their savings. As a certified public accountant, I don’t give direct investment advice, but I’m comfortable keeping my money in the stock market. It’s important to put things into perspective by examining some fundamental indicators.
Younger millennials and Gen Z-ers may be panicking about recent market declines. However, we’ve experienced worse situations before. In March 2009, the stock market lost more than half its value from what it had reached less than two years before.
Yet, in the past 15 years, it has increased sixfold. Today’s economic problems are not as severe as those in 2009. Corrections are a part of the market cycle, and rumors often influence market movements.
The Dow Jones average is currently down about 15% from its high in November, but it is still at a historically high level compared to before late 2022. Despite losses, people who invested in the markets over the past decade are still doing well overall. The economy added more jobs last month, despite shedding hundreds of thousands of government workers.
Other indices remain strong. Although manufacturing has been in contraction for years, the service industries are expanding. Unlike 2009, capital is available, and our banking system is strong.
Consumers are spending, and wages are outpacing inflation. The trade war initiated by Trump is indeed disruptive.
Staying calm amid market fluctuations
However, in the coming months or a little longer, the situation may stabilize. Perhaps Trump’s strategy to “take the medicine” early in his term will time an economic upswing towards the end of his term. While market volatility spurred by rumors and speculation is expected, it is unlikely to be as severe as the 2008 financial crisis.
There are also some pro-growth policies under way with more in the pipeline. Regulatory oversight from the federal government has been reduced through various executive orders and the dismantling of certain agencies. This policy shift allows business owners to focus more on their businesses rather than compliance with federal regulations.
More importantly, ongoing debates about tax policies could result in extending or making permanent many benefits from the 2017 Tax Cuts and Jobs Act, as well as potentially eliminating taxes on capital gains, overtime, social security, and tips. While not all proposed changes will come into effect, some will, likely putting more money in consumers’ pockets and giving businesses a further long-term boost. The bond market suggests that inflation will cool down.
Bond yields have decreased over the past few weeks, indicating expectations for lower inflation and prompting the Federal Reserve to potentially lower interest rates. While a slowdown might hint at a recession, lower interest rates generally reduce borrowing costs, benefiting sectors such as residential real estate, which comprises a significant portion of the U.S. economy. As mortgage rates fall, we may see more activity in the housing market which has been slow due to higher interest rates.
Heading into spring and summer, expect more buyers and sellers to reenter the market. Economists and analysts will have differing opinions, but the bottom line remains: don’t sell your stocks in a panic. History shows that investing in the broader stock market via mutual and index funds tends to outpace other investment strategies.
If you have extra cash, consider investing more into these funds. Always consult with a competent wealth advisor to evaluate your specific risks, but overall, stay calm. You’ll be fine.
