Investors are scared. Is it time to be greedy?
The last time interest rate hikes upset investors was when the Federal Reserve raised rates four times between March and December, reducing bonds on its balance sheets between March and December.
Known? The Fed is using the same playbook this year, though in a more aggressive way.
The Fed has already raised interest rates by 0.75%, and earlier this month, it said it would begin reducing the number of mortgage securities and Treasury bonds starting in June.
The adage “Don’t Fight the Fed” has contributed to the nearly 30% drop in NASDAQ shares from November’s peak. The S&P 500 has outperformed, but it is still down nearly 20%. And Treasury bonds have also been hit hard. For example, the iShares 20-Year Treasury ETF (TLT) – Get the iShares 20+ Year Treasury Bond ETF Report is down more than 23%.
However, the fall in the index indicates fear in the market this year. Many stocks have performed even worse. For example, cryptocurrency exchange Coinbase (coin) has fallen 84%, and the fintech beloved upstart (UPST) – Upstart Holdings, Inc. The report has lost 92% of its value since its peak in October.
The level of pessimism is getting so high that you may be wondering what to do. If the past is the prelude, 2018 suggests shopping for a bargain.
big winners out of the rubble
It’s hard to buy stocks when everyone else is selling them, but doing exactly that has paid off over time, including in 2018.
In 2018, the SPDR S&P 500 ETF fell 20% from its September highs as of December 31, while the NASDAQ 100 (QQQ) – Get the Invesco QQQ Trust Report — a tech-heavy index consisting of 100 large-cap stocks — lost 23%.
Stepping back into the fray was probably the last thing investors wanted to do after seeing their account balances drop so much in just three months.
scroll to continue
Yet buying the stock during that painful sell-off very quickly turned profit-friendly. For example, the NASDAQ 100 was trading at $173 at its highest point in December. If you weren’t lucky enough to buy at that price, you still broke through by the end of February 2019 and gained 10% by April, and you would still be over 68% despite this year’s decline.
Individual stocks outperformed even more. Since its 2018 low, Amazon (AMZN) – Amazon.com, Inc. Get Reports, Google (Google) – Alphabet Inc. Get Class A Report, Microsoft (msft) – Get Microsoft Corporation reports, and Apple (AAPL) – Get Apple Inc. The reports are up 64%, 131%, 172% and 289% respectively. Despite the drop of more than 40% since November, if you bought Tesla (Tesla)TSLA) – Receive Tesla Inc.’s report at a low level.
Those are major returns, but they didn’t come easily.
Buying in the rubble of the market takes nerves of steel and the desire to be false short-term in exchange for long-term reward.
how do you play the market right now
There’s no telling which stocks will be the biggest winners out of the bear market of 2022, but time and time again, it has paid off to be optimistic about America’s future.
Perhaps, Warren Buffett framed it best during the financial crisis when he wrote in Berkshire Hathaway’s annual letter in 2009:
“Amidst this bad news, however, it should never be forgotten that our country has faced worse crises in the past. In the 20th century alone, we faced two great wars (one of which we initially appeared to be losing); A dozen or so panics and meltdowns; rapid inflation leading to a 21 1/2% prime rate in 1980; and the Great Depression of the 1930s, when unemployment remained between 15% and 25% for several years. America has no shortage of challenges” before adding, “America’s best days are yet to come.”
He was undoubtedly right.
Since its 2009 lows, the S&P 500 is up 489%, and the NASDAQ Composite is up 799%. If you told investors to expect those returns in March 2009, they’d be laughing at you. Maybe the same is true now.
Source
