‘A recession over the next 12 months is not in our base case’: Stocks were battered on Friday. Why smart investors focus on the long game

The Dow Jones Industrial Average DJIA,
-2.82%
ended down 981 points, or 2.8%, at 33,811.40. Friday’s performance was the index’s worst daily percentage decline since Oct. 1. 28 2020, according to data from the Dow Jones Market.

Meanwhile, the Nasdaq Composite COMP Index,
-2.55%
fell 2.6% and the S&P 500 SPX,
-2.77%
lost 2.8%.

TGIF, indeed.

See also: ‘Waiting for the perfect moment may not be the best strategy’: 3 things investors should do now as stocks fall (again)

Of course, some shaken retail investors might have already said that’s where things were headed.

Nearly 44% of people say the market is moving in a bearish direction, according to the latest weekly sentiment gauge from the American Association of Individual Investors. That’s nearly 14 percentage points above the historical average of 30.5% on bearish sentiment in the current tracker.

On the other hand, nearly 19% said they were bullish in the week ending April 20. This is up from 15.8% read a week earlier. But it’s been May 2016 since bullish sentiment in the current tracker hasn’t topped 20% for two straight weeks.

Meanwhile, six in 10 investors anticipate increased market volatility and seven in 10 say they are worried about a recession, according to a Nationwide poll released earlier this week.

In the same survey, around four in 10 investors (44%) said they felt more confident in their ability to protect their finances in the event of an upcoming downturn and 38% said they felt confident in their ability to invest in the stock market.

It’s not as if retail investors have a monopoly on the sideways view of the market. Investors pulled $17.5 billion out of global stocks over the past week, according to Bank of America. This release is the biggest weekly move for releases this year, they noted.

The difference is that regular investors who are newer to the markets — and perhaps started during the pandemic — might not have the same resources or risk tolerance to keep their stomachs during shaky times compared to investors more sophisticated or institutional investors.

This is where it’s important to catch your breath and avoid doing anything drastic, experts say, especially with the ongoing recession.

First, there is the short-term story.

“While sustained inflation and a more aggressive Fed pose a risk to the economy and financial markets, a recession over the next 12 months is not part of our base case scenario,” wrote Solita Marcelli, chief financial officer. investments for the Americas at UBS Global Wealth Management.

The economy can grow even with the series of rate hikes investors are bracing for, and first-quarter earnings results were “generally good,” Marcelli said in a note.

There is usually an exception, such as Netflix NFLX,
-1.24%
this week, reporting a net loss of 200,000 subscribers as analysts expected an addition of 2.5 million subscribers.

Plus, there’s the long-term story to remember. Think big and think about the long-term game when it comes to investing during downturns and volatility bots, said Scott Bishop, executive director of wealth management solutions at Houston, Texas-based Avidian Wealth Solutions.

The depressed mood of retail investors expressed in polls and sentiment monitors matches what he’s hearing from his clients right now.

Still, Bishop says that if people feel it’s time to adjust their strategies or cut their losses, “it’s time to make changes to your portfolio. You shouldn’t make big changes. For example, it means it might be time to reconsider allowances, take losses for tax loss harvesting. “If you invest your portfolio based on the headlines, you will always lose,” he said.

The pandemic appears to have stretched much longer, but it’s only been about two years since the COVID-19 market bottomed. Then there is the second part of the story for people who blocked the market instead of cashing in.

At a time like this, it’s definitely worth remembering the next chapter in this story, Bishop said. At the end of the day, the people who experience the most financial difficulties are those who “take extreme measures, binary actions, I’m in it or I’m not”.