Markets surged last week with major indexes posting 6% to 8% gains, recovering all the losses from the preceding two weeks of decline, which came amid Russia’s ongoing war in Ukraine, rising oil prices, and planned federal rate hikes. During that time, the S&P 500 hit what experts call a death cross, meaning the 50-day moving average fell below the 200-day average. It can be one of the first indications of a bear market when stocks go into freefall. But now the S&P 500 just had its best week since November 2020, and is currently holding steady.
Last week, the Federal Reserve raised interest rates for the first time since 2018 to combat the highest inflation in 40 years, with a .25% increase. Policymakers suggest they’ll raise the rates six more times in 2022 at each of the policy meetings planned for this year. Then, there will be four rate hikes in 2023 and none in 2024, which would bring the overall policy rate to 2.9%, slightly higher than the last peak of 2.5% in December 2018.
This is all causing mortgage rates to be over 4% for the first time since May 2019 because of inflation and the overall economy beginning to recover from the pandemic. This is having an effect on the housing market, with sales dropping 7.2% last month, and made worse by low inventory.
Between those planned interest raises and the war in Ukraine, the stock market is seeing bigger daily and weekly swings. Gas prices have hit $6 a gallon in some parts of the county, and we haven’t yet reached the busy summer driving season. Barrel prices have fluctuated between $94 and $105 since early March, and prices look like they’ll stay volatile for a while.
But it’s not all bad news. Both Amazon and Alphabet (the company that owns Google and YouTube), announced a 20-for-1 stock split for early June and mid-July, respectively. That means share prices will decrease 20x, and the number of shares will multiply by the same margin. Investors who buy individual stocks like stock splits because the prices become more attainable for more people. Some experts view it as a sign the company is healthy and well run. When a company’s share price is high, that means profits have been going up for a while, which translates to big gains for investors.
Even — and especially — when there’s volatility in the stock market, the best course of action is to be aware, but stick to your investing plans. It’s impossible to time the market, and historically speaking, it’s always recovered. Stay the course through the dips and peaks, and remember why you’re investing.
Here’s what the news means for you:
- If you’ve been keeping an eye on your portfolio, you’ve no doubt noticed the up-and-down gyrations over the last month or so. Unless you have a reason to sell, hold tight and keep investing. Dips and gains are part of the journey. This is certainly an opportunity to buy low and keep your emotions in check. Historically, the stock market has always recovered from dips like we’ve seen in recent weeks.
- If you’ve been hunting for a new home, you’ve likely been dealing with low inventory and situations with multiple offers — plus higher mortgage rates on top of it. This has kept many potential buyers in a holding pattern known as “stagflation” — a stagnant, overpriced real estate market combined with inflation.
- You might pay more at the gas pump — or prices might go down again. We don’t know what to expect because of the Ukraine war’s impact on Russia’s oil supply. It’s likely going to be an unpredictable summer, and may cause people to skip road trips for vacation. We’re already seeing flight prices go up because of the threat to oil reserves. If you find a good deal, book it before prices jump.
- If you’ve considered purchasing Amazon or Google stock, your chance is coming this summer. When the stocks split, it’ll make two FAANG companies more affordable for investors.
Looking ahead, stock futures are steady after two straight weeks of positive gains. Futures are financial contracts that commit a buyer or seller to buy or sell an asset at a future price and date, respectively. That means the market isn’t moving up or down in any meaningful way, so it’s hard to tell where it’s headed. That’s usually the case, but doubly so right now.
The ongoing war in Europe could be key for markets in the next weeks and months. President Biden has already said the U.S. would “respond” if Russia uses chemical or biological weapons in Ukraine, which would almost certainly send stocks falling if the U.S. became involved.
How Investors Should Deal With Stock Market Volatility
For new investors, big swings in the market can be a lot to handle. There’s a lot of uncertainty right now because of interest rate hikes, increasing real estate prices, and everyday commodities getting more expensive because of inflation — and the market reflects that on a day-to-day basis.
But if you have a buy-and-hold strategy with low-cost, broad-market index funds, remember that slow and steady wins the race. The best performing portfolios are ones that have the most time in the market.
“The most important thing is to always remember what you’re investing for,” says Thomas Muñoz, associate financial life advisor at Telemus, a financial advisory firm. “Short-term volatility is obviously something people should be aware of. But if you have a long-term time horizon, historically the stock market goes up. And when that’s the case, it’s important to have the discipline to keep dollar-cost averaging your [investments].”
Dollar cost averaging spreads out your deposits over time, and has demonstrated that it performs better “during a period of high market crashes,” says according to Rebecka Zavaleta, creator of the investing community First Milli.
Whatever you do, invest early and often, especially if you have a long investment timeline. Dips and crashes will happen, and so will other scary-sounding things like economic bubbles, bear markets, corrections, death crosses, and recessions.
You can even take advantage of a dip to invest more, but not if it impacts your regular investing schedule, Muñoz advises. It’s hard to tell when there’s going to be a dip or correction, and “not even the best investors in history can time the market.” The best advice is to stick to your plan and keep investing.