Look everyone's portfolio is likely looking red, so here's what you need to do: Likely doing nothing for now is the right move. Don't sell at a loss. Work more hours so you have more money to buy solid, economy defining stocks at a fraction of their price they once were and build your retirement portfolio. (PYPL for example, way oversold with a 26 RSI). Downward pressure (bear market) is not forever and doesn't last as long as upward momentum (bull market). In the end, stocks of financially healthy companies will continue to go up. They always have and will.
As long as you're patient and investing in solid companies with healthy balance sheets poised for future growth (even if growth slows in 2022), you'll be fine.
The market is forward looking. Once it gets a grip on where the Fed wants to take rates (likely around 2% by year-end with 50bps the first 2 rate hikes and 25bps thereafter). They will then continue to monitor if inflation is going down from CPI data before hiking more.
Inflation will go down. Odds are we are here at the peak of inflation currently as we sit. Used and new car prices are not as expensive as they once were and are starting to come down. In my opinion I feel the economy will slow down substantially simply as a result of high gas and food prices re-routing what people can or can't spend their money on.
Covid for the majority of the world except China has pretty much subsided. People will go out and spend money, that's a given. However, they will be limited on how much they can go out and spend due to the increase in food and gas. Once consumer spending decreases, inflation will also decrease.
Prices of goods only go up if people are willing to pay them. Once people stop paying sky high prices for assets and commodities, prices will come back down. I think this will happen relatively soon.
A simple look at the stock market is a prime example. The market is forward looking like I said. People are not willing to pay high multiples of companies due to slower growth in the future. Any slowdown in future growth in a company's quarterly earnings will drive the stock price down. Why? People don't want to pay high prices for a company that's not growing as fast, and nor should they.
The Fed technically hasn't even done anything beside 'threaten' to raise rates so far. But a hawkish Fed (an aggressive rate hike minded Fed), is scary to the market. If they hike rates too aggressively and slow down the economy too much, then we'll have a recession (albeit a short one in my opinion, but inflation would cease to exist pretty much instantly going this route).
So far all we have endured is a 25bps hike. With the current Fed rate at 0.25%. Likely to go up to 0.75% on Tuesday, May 3rd. But if they say they want to tighten rates more aggressively than 50bps, the market will naturally have a huge negative reaction because a future priced market does not like slow growth. However this route will end inflation quicker, so the market can go back to normal once the dust settles.
Again, all the Fed has done so far is mostly talk. They haven't really taken much action yet as far as tightening goes. I'd say the market is currently pricing in Fed rates of around 3% which is taking us well into 2023. Which means by 2023 the market will start pricing in growth for 2024. This is when I think the growth will resume its bullish trajectory. Until than we are likely to remain volatile.
TLDR: Long story short, be patient. Do not stress over what you cannot control. Let the Fed do they're job and you do yours. Earn money. Control the budget and buy the dip if you have the means to do so. Real wealth is built during markets like this. Once the bull market resumes, make sure you are on the train.
Leave a Reply