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5 Things to Remember in a Nervous Stock Market

5 Things to Remember in a Nervous Stock Market

The stock market is fretful.

I’ve always thought of the price, and the daily price movements, of individual stocks as telling a bit of a story. That’s because a stock’s price at any point in time is the result of individual market participants making individual decisions to either buy or sell it. Are those investors optimistic about a company’s prospects? Or are they concerned about a company’s ability to grow?

The same goes for the “stock market,” since it’s made up of individual stocks. The stock market is thus simply an aggregation of each of these many, many decisions to buy or sell, and so it tells us a broader story.

Lately, it’s been telegraphing nervousness about a slowing economy and increasing risk. And there are a number of reasons (some interrelated) for this nervousness.

  • The Federal Reserve (the US’s central bank) is increasing interest rates. All other things being equal, higher interest rates could mean lower stock prices, as increasing interest rates can slow the economy and higher interest rates mean that fixed-income investments can be relatively more attractive.
  • Concerns over tensions and a potential trade war between the US and China.
  • Concerns over the outlook for growth for the big tech stocks. They’ve been monsters, but is their growth slowing?
  • Concerns over too much debt at GE. Yes, weakness in one (gigantic) company can cause worries about a ripple effect, given the interconnectivity of a company like that with the banks that lend to it.
  • Concerns over lower oil prices. Lower energy prices, while good for an individual’s pocketbook, can be a sign of a slowing economy, due to lower demand.
  • Concerns over the economic risk from a messy Brexit.
  • Concerns over the fading of the economic boost provided by the 2018 tax cut.

Those are a lot of concerns. But they boil down to one overarching question that the stock market is wrestling with: Are we going into a recession?

Here’s the good news: Most economists are not forecasting one. And, frankly, the stock market’s track record of “forecasting” a recession is not great; it tends to “correct,” as it has been doing, much more often than we see an economic contraction.

OK …

So what to do?

Recognize that equity markets have historically trended upward over time, and stay invested.

And know that no one — and I mean no one — can call the weekly (or monthly, or even yearly) ups and downs of these stock market bumps correctly, so trying to trade in and out of the stock market to catch the market’s moves has been a loser’s game.

Recognize that this is normal.

One can’t earn the stock-market-like returns (historically around 9.5% average annual increases) without volatility. In other words, earning returns without risk just isn’t a thing.

Recognize that Ellevest investment portfolios are not 100% invested in equities, but diversified across other asset classes as well.

And that stock markets do not always go up in the short term, and that investing into other types of investments can provide diversification and smooth out the bumps.

Recognize that we forecast for this.

In forecasting you reaching your goals (ie, how much money you will have over time), Ellevest builds markets like this into our forecasts. We work to get you to your financial goals in the majority of markets.

And recognize that there’s an upside.

When the market declines, that means you’re able to buy stocks more cheaply this week than you were last week. Historically, that has been a very good thing.

You can learn more here.

Have more questions? Follow up with the expert herself.