Unsettling times have hit the global market. Last week, the Dow‘s close at 19,173 points concluded the worst week since 2008 and marked its lowest level since December 2, 2016.
Stocks have become far less expensive than they were only a few weeks ago. This sell-off has been particularly fast and brutal, going down as the quickest double digit-decline in market history.
Until we know how far the coronavirus will ultimately spread, or what its total impact on the economy will be, the issues driving the sell-off are unlikely to resolve themselves any time soon.
Obviously, the question on every investor’s mind is: should you buy, hold or sell stocks right now?
When the coronavirus first emerged in China in January, the debate was focused on whether the outbreak would eventually affect the U.S. and other western markets. This debate has now been settled.
Regardless of how lethal the virus ends up being, the coronavirus outbreak has already created a far more severe impact on the economy than past outbreaks like SARS or the bird flu.
It’s sure to say that there will be a weighty impact on the U.S. economy, that may lead to a global recession.
Yet, there is room for optimism.
Wall Street tends to be focused on quarterly results, and this current quarter is going to be ugly for broad swaths of the economy. But in China, where the outbreak began, the rate of new cases is declining, and business is getting back to normal.
There is also nothing so far to suggest that there will be a permanent impact on Wall Street, or that earnings will not eventually recover.
Even though the global markets are in the midst of mayhem, it is the wide belief of global analysts that as long as your pressing financial needs are met, selling stocks after a massive market sell-off is an inadvisable move. The goal of investing is to buy low and sell high. By panic-selling, you’re doing the exact opposite.
In light of this, a recent UK poll shows that although many investors and traders are still sitting on the fence amid coronavirus concerns, more active investors are buying stock than they were just a few weeks before. Some 44% of investors said they are increasing their stock portfolio – up 9% from the previous survey.
Additionally, many analysts are saying that if the sell-off continues, at some point soon, there will be a market littered with once-in-a-lifetime buying opportunities.
The bottom line- buy, hold or sell? There simply isn’t one this time. When it comes to investing, there are always three sides to the coin.
The choice is simply up to you. The correct response to the market’s uncertainty ultimately depends on your life stage, financial condition, risk tolerance and financial priorities.
For some, notably those close to retirement or holding short-term financial goals, it could make sense to want to put their investments on hold.
But for risk-resistant traders, the market’s current high risk/high reward state could be just the opportunity they’ve been waiting for.
Choosing to stay in the game can be a great option if you’re confident in your strategy. If, however, you do decide to use the market falls for portfolio rebalancing and trade during a spike in volatility, be aware of how the market conditions will affect your trade. Any excessive leveraging is best avoided at such times.
It is a scary time to be an investor. But if history is any indication, there will eventually be a rally, that may more than make up for today’s losses. After dark nights there are dawns.
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