“A recession over the next 12 months is not in our base case”: The shares solidified on Friday. Why smart investors focus on the long game

The stock market ended a volatile week in a gloomy tone on Friday, with the three major US indices plummeting as investors stumbled across concerns such as inflation, the Fed’s fight against it and fears of a hard-hitting recession.

As self-confidence also weakened, financial experts advised investors not to panic, but rather to think about long-term strategies.

Dow Jones Industrial Average DJIA,
ended down 981 points, or 2.8%, to 33,811.40. Friday’s performance was the index̵[ads1]7;s worst daily percentage decline since October 28, 2020, according to data from the Dow Jones Market.

Meanwhile, the Nasdaq Composite Index COMP,
shrunk by 2.6% and the S&P 500 SPX,
lost 2.8 percent.

TGIF, in fact.

See also: “Waiting for the perfect moment may not be the best strategy”: 3 things investors should do right now when stocks fall (again)

Of course, some ragged retail investors could have already said that this is where things have been going.

Nearly 44% of people say the market is moving in a bearish direction, according to the latest weekly sentiment poll from the American Association of Individual Investors. It is almost 14 percentage points above the historical average of 30.5% on bearish sentiment in the ongoing tracking.

On the other hand, almost 19% said they were positive in the week ending April 20. That is up from 15.8% read a week earlier. But it has been May 2016 since the bullish feeling in the ongoing tracking has not exceeded 20% in two weeks in a row.

Meanwhile, six out of 10 investors expect an increase in market volatility and seven out of 10 say they are worried about a recession, according to a poll Nationwide released earlier this week.

In the same survey, about four out of 10 investors (44%) said they felt more confident in their ability to protect the economy in any coming downturn, and 38% said they felt confident in their ability to invest in the stock market.

It is not as if retail investors have any monopoly on the side-eye view of the market. Investors took $ 17.5 billion out of global equities over the past week, according to Bank of America. That outflow is the biggest weekly draw for the exits this year, they noted.

The difference is that regular investors who are newer to the markets – and may have started during the pandemic – may not have the same resources or risk tolerance to hold their stomachs in trembling moments versus more sophisticated investors or institutional investors.

Here it is important to breathe and avoid doing something drastic, experts say – especially when the recession continues.

First, it’s the short-term story.

“While sustained inflation and a more aggressive Fed are a risk to the economy and financial markets, a recession in the next 12 months is not our starting point,” wrote Solita Marcelli, Americas’ chief investment officer at UBS Global Wealth Management.

The economy can grow even with the series of interest rate hikes that investors are preparing for, and the results for the first quarter have been “generally good,” Marcelli said in a note.

There is generally an exception, such as the Netflix NFLX,
this week reported a 200,000 net loss of subscribers as analysts hoped for a 2.5 million subscription.

Besides, it’s the long-term story to remember. Think big and think about the long game of investing during downturns and volatility periods, said Scott Bishop, CEO of wealth solutions at Avidian Wealth Solutions, based in Houston, Texas.

The discouraging retail investor sentiment expressed in the surveys and sentiment traces matches what he hears from his customers right now.

Still, Bishop says that if people feel it’s time to adjust strategies or cut losses, “it’s time to make adjustments to your portfolio. You should not make any wholesale changes. ” For example, it means that it may be time to reconsider allocations, take losses for tax loss harvesting. “If you invest your portfolio based on headlines, you will always lose,” he said.

The pandemic feels like it has stretched much further, but it has only been about two years since the bottom of the COVID-19 market. Then there is the second part of the story for people who are stuck in the market instead of withdrawing money.

At a time like this, it’s definitely worth remembering the next chapter in that story, Bishop said. Ultimately, the people who experience the most financial pain are those who “take extreme action, binary action, I’m in or I’m out.”

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