Most of the US market indices ended the week lower for the second week in a row as the war in Eastern Europe, inflationary pressures and expectations for more aggressive action by the Federal Reserve to dampen rising price levels weighed down current stock market sentiment. †
Wall Street closed the holiday-shortened week with a weaker close on Thursday as bond yields rose again and investors grappled with conflicting earnings and economic data.
Volatility, especially intra-day, was higher than normal, so many investors may be dissuaded from investing, but there are a few reasons to invest.
Market timing is a challenge. In theory, it makes sense to pull out money just before stock prices plummet and reinvest when prices are bottoming out. Because the market is sometimes unpredictable, it is practically impossible to know exactly when to sell.
Plus, selling at the wrong time can be a costly mistake. Let’s say you remove your money today, anticipating a drop in stock prices. However, if the market rises, you will miss out on those gains. If you later decide to reinvest to re-enter the market, you may pay a higher price.
Even if you decide not to sell and stop investing, there are risks. The market is constantly changing and will experience regular ups and downs. If you only invest while the market is thriving, you will not only buy at higher prices, but you will also lose valuable time to grow your money.
Is Now the Right Time to Invest in the Current Stock Market?
Even when the market is volatile, it usually pays to keep investing. However, it is best if you double check that you have enough emergency reserve. If you continue to invest, the key to surviving periods of market volatility is to stick with solid publicly traded stocks and have a long-term perspective.
1) Understanding the difference between Main Street and Wall Street
The stock market’s rapid recovery in 2020 ran counter to the US economy. However, a deeper examination reveals that this disparity may not be as confusing as it seems.
The stock market reflects investors’ expectations for the future, not current events. While private investors (individuals) are more likely to buy and sell based on the daily news, institutional investors (companies such as banks and wealth management organizations) are more likely to look ahead. It means that stock market performance does not necessarily reflect current economic conditions.
The S&P 500 is also weighted by market capitalization, meaning that larger companies have a greater impact on the index’s performance. Despite the ongoing economic challenges brought about by the pandemic, many of the largest companies in the index are in technology and propelled the S&P 500 to record highs. When investors lose faith in technology stocks, those same companies drive the index down (even if some economic indicators are positive).
2) Time in the Market vs. Market Timing
Staying invested is the best way to generate wealth. It is easier if you invest for the long term. Because the stock or mutual fund you buy is likely to lose value in the short term, don’t invest the money you need for the next five years.
If you need the money for a major purchase or an emergency, you may have to sell your investment before it recovers, resulting in a loss. Short-term declines, on the other hand, aren’t a big deal if you’re investing for the long term. Compound earnings over time are what will help you meet your retirement or long-term financial goals.
Staying invested is the best way to generate wealth. It is easier if you invest for the long term. Because the stock or mutual fund you buy is likely to lose value in the short term, don’t invest the money you need for the next five years. If you need the money for a major purchase or an emergency, you may have to sell your investment before it recovers, resulting in a loss.
Short term declines are not a big deal if you are investing for the long term. Aggregating gains over time can help you achieve your long-term retirement or financial goals.
3) Be careful while entering the stock market
Treating investment contributions as a recurring subscription — a practice known as dollar cost averaging — is one of the best ways to stay calm and invested during periods of turbulence.
Instead of timing the market, invest a certain dollar amount once or twice a month. You buy in at different prices, which in theory should average over time.
So, how do you go about averaging the dollar cost in the market? A common technique is to combine this with equity funds, such as exchange-traded funds (ETFs).
ETFs combine a number of different stocks into a single investment, so you can invest in all of them. For example, if you bought an S&P 500 ETF, you would own a portion of every company in the index. ETFs allow you to quickly build a well-diversified portfolio instead of investing all your money in a few individual stocks.
Key learning points
Shares of Airgain Inc (NASDAQ: AIRG) rose after announcing that it had signed a multi-million dollar deal with a major U.S. water supplier. After missing earnings per share projections but beating revenue expectations, shares of Rite Aid Corporation (NYSE:RAD) rose. After JPMorgan claimed the footwear and apparel giant expected an improvement in China, Nike’s (NYSE:NKE) stock is trading higher. Nike management sees China as “on track” to provide “sequential improvement”. Huntington Ingalls Industries Inc (NYSE:HII) outperformed the market, pushing the stock price higher. According to the expert, the growth prospects for the defense sector budget have improved as a result of the Russia-Ukraine conflict and the threat of further Russian-Chinese aggression. After Deutsche Bank confirmed its buy recommendation and raised its price target to $250 from $242, Caterpillar (NYSE:CAT) rose more than 4% in Thursday’s trading, reaching its highest level since mid-January. After regulators approved the country’s first batch of new games in more than eight months, Tencent Holdings (OTC:TCEHY) Ltd., which manages and owns EPIC Games, rose and joined the rest of China’s game industry. at a rally. Elon Musk launched a hostile takeover attempt of Twitter, unlikely to succeed, but if he does, his pre-existing portfolio of companies, including Tesla and SpaceX, will be significantly larger.
Disclosure: The author is not a licensed or registered investment advisor or broker/dealer. They do not give you individual investment advice. Consult a licensed investment professional before investing your money.
Tim Thomas has no positions in the listed stocks, ETFs, cryptocurrencies or commodities.
This entry was produced and published by Tim Thomas / Timothy Thomas Limited.
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