Key takeaways
- A vicious cycle: More bad news leads to more market drops, which will in turn lead to more bad news and more market drops.
- If an economic report is worse than expected the markets will be upset. The numbers matter most relative to expectations, when there is a surprise, the market gets upset.
- For the people that have been sitting on cash or waiting for the right time to get in the market, a DCA approach is a great one to look at right now.
- Recency bias can hurt you, yesterday’s winner could be tomorrow’s loser, it’s not wise to not be looking at your portfolio and assets right now.
Inflation report
The news is bad. When the news is worse than expected, it’s very bad. The analysts forecasted a bad inflation report but the actual report was even worse than they thought. This surprised the market, and the market hates surprises. We are seeing big downs in the first hours of trading, over 800 points down on the Dow Jones.
Today is an acceleration down in the market that feels like a frightening roller coaster drop. If you’re in the market for the downs, you’ll have to ride it out for the ups. We don’t know how long it will be and there may be more exhilarating drops ahead, but if we can stay seated and ride it out, this will end.
What will be the next shoe to drop?
This could be a catalyst that sparks fear with investors and future data reports that come back with bad news and may send the market even further down. This could be the acceleration of the downward spiral into a vicious cycle for this market. More bad news leads to more market drops which will in turn lead to more bad news and more market drops. The definition of a vicious cycle.
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Is this a buying opportunity?
The true investors among us see this fear in the market as an opportunity to buy at a discount. Things are less expensive today than they were a day ago. The worry is that you buy today and things continue to go down. The old adage, buying in a bear market is like trying to catch falling knives. You could get hurt as long as the knives continue to drop lower in the market.
If you’re a long term investor and you have faith in the viability of a given company or index, you might be well served to buy these dips in the market. As the market may continue to fall further downward, you can continue to buy stocks at steeper discounts, this approach is called dollar cost averaging (DCA). For the people that have been sitting on cash or waiting for the right time to get in the market, a DCA approach is a great one to look at right now.
There are going to be more reports on the economic calendar this week. We will see the Producer Price Index released on Wednesday, the Empire State Manufacturing Survey on Thursday along with Retail Sales data by the Census Bureau. Finally on Friday, we’ll see the Consumer Sentiment Index reported. These reports are on the economic calendar this week and they carry expectations of how bad things are, if a report is worse than expected the markets will be upset. The numbers matter most relative to expectations, when we are surprised, we are upset.
Where are you in your financial life-stage?
If you’re analyzing your personal financial situation with all of this news, it’s important to filter this market environment to your life-stage.
If you’re in your 20’s, keep your head down, work hard, minimize debt and invest into your 401k and investment account as the market falls. Your time horizon is long, particularly for those twenty-somethings planning for retirement.
30’s & 40’s - you’re more established, you’re not a newbie with being an adult, seek to minimize debt and bolster up 401k contributions to the maximum. This market downturn is an opportunity for you, your time horizon is still long for retirement.
50’s & 60’s - it’s real, there is light emerging at the end of the tunnel with retirement. Seek to save the max in retirement vehicles. Maxing out 401ks and additions into IRAs. Understand your lifestyle and how much it costs, try to understand how much income you’ll need for retirement and match this income needed to the income you’ll have from your retirement resources.
70’s and beyond - protect the downside, you might not be buying new stocks like you once were but income is key. If you’re good on cashflow for your daily needs, not much changed for you today. Try to be safe and thoughtful with your investments, taxes and estate planning decisions.
Doing nothing is not the answer
The past 13 years with the stock market has been a pretty glorious ride upwards. I still remember March 9th 2009 when the intraday trading on the Dow reached 6,500. That was my mental bottom and I made some purchases that day. Admittedly, I did not hold them for the long-term and sold too early but that is a story for another day.
The salient point here is that many people have become complacent with their investments because the market has roared up for over 13 years. The reality is, recency bias can hurt you, and adjustments need to be made. Yesterday’s winner could be tomorrow’s loser, it’s not wise to ignore your portfolio and assets right now. You need to ask the question, “What is my best next step right now, for my portfolio and my life-stage?”
There are tools that can help you, there are ways to work smarter with how you hold your investments and make decisions. Investments are a big piece of your financial puzzle and it’s a fluid situation with this market, but also remember to consider your insurance, cash management, tax planning and estate planning too, these may not be urgent like your investments and retirement but they are important too.
Stay calm and invest on…
Be careful not to get caught up in all of the sensationalism of the headlines and media buzz. Yes, the economic news was bad today, it may get worse before it gets better, but you know where you are and you know where you are headed financially. These market cycles are normal and, they are a normal part of how an economy expands and contracts.
It’s also important to have trust in the resiliency of businesses to find a way to serve a need or sell a product and make a profit. The lower valuations in your investments can be disheartening but control what you can control, find the right fit for your financial life-stage and press forward.
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