Over the last few weeks, as the stock market has tumbled, hiccupped and tumbled more, everyone is wondering if this is it....the Big Market Crash. Alas, the answer to that is no. The market is not crashing but that doesn't diminish the discomfort that precipitous market falls illicit in our collective bellies. Market downturns are nerve racking. There's a saying in the financial world that a bull market takes the escalator up but a bear market takes the elevator down. When the market falls into correction territory, it's natural to fear that it will keep going.
We are in the throes of a market correction. All of the equity benchmarks that we look to, the Dow Jones Industrial Index*, the S&P* and the Nasdaq* have pulled back from recent market highs. We've gotten very comfortable with market advances. 2021 returns were spectacular! 2020 returns were impressive too. The stock market seemed impervious to the pandemic related problems swirling all around us and has been incredibly resilient but a healthy market has to reset every now and again.
What is happening? The stock market hates uncertainty. The Federal Reserve has already announced that it will be raising interest rates this year in an effort to curb inflation. The uncertainty lies in how many interest rate hikes there will be and how much interest rates will rise each time. The stock market will dissect every word in Fed Chairman Jerome Powell's monetary policy statement on Wednesday (January 25th). In addition, the Russia-Ukraine situation and the ongoing pandemic related labor shortages, supply chain issues and healthcare systems stretched to the limit have also spooked the market.
Along with interest rate hikes, the market will also be watching corporate earnings. Within the next two weeks, Apple, Amazon, Microsoft, Google, Tesla and Johnson & Johnson to name a few, will report earnings. Positive corporate earnings news could fuel a market rebound while negative news could have the opposite affect. I am optimistic that we will have much to celebrate on the earnings front!
Market downturns can be difficult to endure, especially when we are at or near retirement age and beyond. Incredibly, the very best strategy during market downturns may be no strategy at all. Hold and wait for the inevitable rebound. Markets can swing back into positive territory in a hurry after a fall especially when good companies are selling at deep discounts.
To coin one of Abraham Lincoln's favorite sayings......this too shall pass.
Warm Regards,
Johanna