It’s been a tough couple of months for just about everyone with investments. The traditional advice of not selling during a retraction is starting to hurt. Buying high and selling low defeats the goal of having your money appreciate they say. Bear markets recover to levels higher than prior bull market gains, the assurances go. What we’re seeing today, though, is unprecedented. Hold or sell isn’t as easy a question as it used to be.
Fortunately, even in bear markets, there are patterns. Spending behavior is different when the economy is suffering. Doing nothing and depending on dollar cost averaging to save the day might not work with the kind of retractions happening today.
The biggest losers
Large-cap and high-tech stocks are taking a pounding. The top tech stocks have lost $3 trillion this year in market capitalization. Sure, they were overpriced, but that’s trillion with a “T,” which is a huge number. To put that in perspective, the projected deficit for the US government this year $1 trillion.
Traditionally stable industries are hurting too. It’s not just due to people spending less or increasing borrowing costs. Consumer staples are suffering as supply chain challenges continue. Even Berkshire Hathaway is down 25% from its March high.
It’s a frustrating year where both bonds and stocks have lost value. Bloomberg Barclay’s US Aggregate Bond Index dropped more than it has in the past four decades, down 8.8% this year. So what’s a simple saver supposed to do? Hold or sell or something else?
Possible bulls in a bear market
If we could predict the market with certainty, there wouldn’t be much need for work. The stocks that do well in a bear market, however, aren’t usually the same ones that appreciate when stock prices are rising. With selloffs and less disposable income, money shifts to the must-haves.
Think healthcare, banks, energy, real estate, communications, shipping, consumer goods, and other areas where demand will continue even as wallets shrink. Of course, not all companies are created equal. Some firms in these sectors are well run and future-focused, others might struggle to prosper. Now, more than ever, it’s important to do your research.
Why are things so weird?
We’ve never seen a time like this with so many different things affecting our financial markets. Global events are affecting us in the US more than ever before. It’s not just international markets, either. We’ve become so connected no one is immune to the challenges facing everyone.
War, COVID, inflation, a rocky economy (in all parts of the world), supply chain issues, and China’s behavior impact just about everything we buy today. It also affects the stock price of the companies selling this stuff which makes the question of hold or sell a hard one to answer. Confidence and liquidity can play big roles in valuations. Uncertainty isn’t the market’s friend.
What should you do?
What we’re experiencing today isn’t like anything we’ve seen before. Many believe we’re in for more retraction, with some projecting an additional 10-20% pull back before the year ends. Even businesses profiting from everyone else’s woes can’t get the parts or people they need to meet demand.
Look for shifts in the types of industries logging successes. That may not be what you’re holding. Some of the industries mentioned earlier are a good place the start. There are others. Many involve conservative staples that get classified as necessities. It’s anybody’s guess what the market will do next, but if your plan is to hold on tight to what you have, reconsidering some of your investments could help you do that. If you’d like some help, pick a time that works for you on my calendar and we’ll figure out an approach based on your particular circumstances and goals.
