I’ve said this before and I’ll say it again. Money Is Your Superpower! But like all superpowers you have ot use them with caution. You want to grow your money from your money, that’s why we all invest in the stock market. But that doesn’t mean we won’t get a queasy stomach now and again.
Now is the time to get comfortable with the stock market because as you continue to build wealth the aftermath of downturns in the market will absolutely get your attention. You don’t want to panic, you want to feel in control amidst the seemingly chaotic rollercoaster. So I want to simplify what happened in the stock market in March and April and what we can expect going forward.
From a stock market standpoint, March took us into whirlwind. The COVID-19 Virus affected the entire globe literally stopping every economy in its path. Shelter-in-place guidelines were set, many people were quickly out of work, supply chains everywhere were severed and manufacturing and production slowed and or stopped altogether. On top of that the stock market tumbled down intensifying the anxiety we were all feeling.
The Dow Jones and the S&P 500 dropped around 12-13% because the virus effected the entire globe. It was the worst month we experienced since 2008. But let’s keep this in perspective because news outlets try to sell these anxiety driven headlines. When the market hit its lowest point in March, those levels were about even with where the stock market was trading in October of last year.
That doesn’t mean it felt good but the headlines and panic behavior made it out to be worse than what it really was. There were areas of the stock market that were hit hard, anything travel or retail related. But areas that did well were health care and consumer staples.
Health care may be obvious to you but consumer staples are literally the household staples you use every day. Like toilet paper, Clorox products for cleaning, things like that. Those areas of the market did really well.
Market volatility in general should be expected. We haven’t seen much in the past few years so this recent downturn was fast and abrupt but then April happened. April's market returns were incredibly strong we saw the best monthly returns since 1987! So it’s never a good idea to make knee jerk reactions to sell your investments but you should know what you’re invested in, it should be spread out between different types of asset classes so you’re vulnerable to 1 specific area. Another example of emotional investing getting in the was in 2009, 2010, 2011 there was more money out of the stock market in cash that we had ever seen in the United States before. Most people missed the huge increase in the stock market during that time because it immediately followed the financial crisis.
Where do we go from here?
While in normal times the stock prices follow company’s earnings, this earnings season has not been strong. But on the other side of that fiscal and monetary support from our government has been significant. Rather than go into detail of how some of that is functioning I'll simplify it by saying the government is doing all they can right now with the tools available to them. The market is looking to grasp onto something positive at the moment. Even the slightest news in one direction (positive or negative) will drive the market’s performance in the coming weeks. Certainly, anything positive in terms of immunity or a vaccine to COVID-19 would be encouraging.
So sit tight if you’re invested for the long term (meaning 10+ years). Well, as long as your investment mix is diversified and you’re not placing any bets. If you have money invested that you need in the next couple of years, I would seriously consider whether or not you’re willing to take that risk. The potential upside isn’t worth the downside. Stay safe everyone!