The past few months of 2022 have showcased a largely bearish global market. Both the tech-loaded Nasdaq and benchmark index S&P 500 have plummeted by many points.
Before we understand strategies on where and how to invest in these times of turmoil, let us first understand the reasons that have contributed to the bearish market.
1. Russia-Ukraine War
The Russia-Ukraine war has disrupted global supply chains, resulting in prices of essential commodities like oil and wheat shooting up worldwide.
People have been forced to liquidate assets in want of more free cash to buy basic goods and keep themselves afloat. Many are selling off tech stocks and resorting to safer securities like gold that promise stable returns.
With the uncertainty a war brings, global markets will continue to remain impacted by the macroeconomics of the region and its repercussions till the war ends.
2. Post-Pandemic Bubble Burst
Tech and essential services witnessed a boom during the pandemic and experienced staggering growth, facilitating the formation of a wealth bubble. But as restrictions were lifted and demand for these services waned, the bubble burst, sending markets into chaos.
3. Panic Selling
The volatile market conditions have resulted in investors panic selling their stocks. The rapid and mass exit in the market creates massive uncertainty and devolves the stock prices even further, creating a feedback loop.
4. Soaring Inflation
Interest rates are soaring high as inflation shoots up, closely chasing each other. The direct brunt of which is borne by the people.
A rise in the inflation rate simply implies a rise in the cost of raw materials and less buying capacity in the common masses. This causes people to stop investing and save money for the higher cost of living.
5. Infrequent Retail Investors
With travel time getting eliminated and easy access to investment apps, the stock market witnessed ‘guest investors.’ The purchases were not often well-researched and based on inadequate trading knowledge.
This created uncertainty in the market, leading to the overvaluation of certain shares as these retail investors exited the market post-pandemic.
What is the Way Forward?
Despite odds, good news awaits!
While no one can say for certain when the markets will completely recover, the upside is that every low tide is followed by a high tide. In the meantime, you may want to revise your investment strategy and readjust your asset allocations:
1. Rebalance your Portfolio towards Less Risk
Since tech stocks are going down, it could be beneficial to offset the risk by increasing your asset portions of low-risk securities. It will enable you to remain inside your risk appetite and prepare you to ride through the market crash without great losses.
It is evident that commodity prices will be on the rise for the next few months. Its cascading effect will spill over to several other industries as they too get negatively impacted.
Balancing your equity and debt investments as per your financial goals is advised in the current market trends.
2. Opportunity for Buying Elite Stocks
For seasoned investors, there is no better time to buy stocks that are generally expensive and out of one’s investment budget.
For investors who have heavy capital invested, hold through the tiding times. Markets will recover, but panic selling would only erode your capital gains sooner.