The US economy, analysts say, is quite vulnerable these days. Inflation is at an all-time high, according to retail market numbers, and people, especially investors, are unsure of what to do.
But as always, there is a large segment of stock dealers who say that there is no real need to worry. Let’s go deeper into the reasons, and get some logic and conventional wisdom behind it.
The State of the Stock Market
The stock market in the USA, just like anywhere else in the world, is prone to ups and downs. Any kind of news, political, financial or otherwise, can affect the stock market for better or for worse.
Markets are subject to speculation, and when a situation of uncertainty prevails, speculation is rife.
What goes up must come down. A bull market must turn into a bear market at some time. It’s clear that the market runs in cycles, and some say that we are in for a cyclical correction.
A Mix of Positives and Negatives
Take it from the horse’s mouth. Berkshire Hathaway’s Charlie Munger has remarked that the market is full of speculation these days.
Ever since Russia attacked Ukraine, the markets have been flustered. If we thought there was going to be some semblance of normalcy after recovering from the Covid-19 crisis, it seems we were wrong.
The Covid-19 crisis has spawned a whole lot of unanticipated risks. Supply chain vulnerabilities, rising unemployment, food shortages- all these are harbingers of a recession.
On the positive side of this equation, you will find that many of the younger generation invested in the stock market for the first time. According to some estimates, around 20 million people have invested in the market since 2020.
Unfortunately these investors have never experienced a lot of market volatility. High inflation and high interest rates have added to market turbulence.
Newbie investors, who invested their extra income as a safety measure are now panicking. Indiscriminate buying is giving way to indiscriminate selling.
All is not lost: Why There is Still some Hope
- Market pundits maintain that the present state of uncertainty cannot last for long. They point out that downturns have seen shorter runs than bull markets.
- A typical downturn has lasted for not more than a year. And bear markets have ruled once every 4.5 years on average, according to S&P historical indices.
- So not only will we avoid a recession, but there are chances of a big bounce back.
- Historical evidence from as far back as the 1970s indicates that when the S&P 500 lost more than 10 percent of its value barring a recession, stocks recovered within a few weeks.
- In fact some analysts are saying that now is a good time to make a short term bet on the market. Invest for the long term and you will be rewarded. The volatility index of stock prices at this point is much lower that it was during the last two recessions.
- Buy long term and hold, say analysts, and you will get better returns after a year at the very least.
- Historical data supports the fact that a 6 week losing streak on the markets was followed by a 10 percent rise in stocks, on the average.