The Stock Market is Downtrending – Why, How and What to Do
Something big is happening on the Stock Market right now. And it’s such a big deal that the S&P 500 is having its worst September in the last nine years.
- Why is it happening?
- How is it happening?
- What should you do?
Stay with me until the end to find the answers to these questions and many more!
Hello everyone and welcome back to Investing with Antoaneta. In today’s blog, we’re going over the latest developments on the Stock Market. We’ll have a look at what exactly is going on, why it’s happening and, of course, how you can profit from it.
And, without further ado, let’s dive right in.
Why the Stock Market is Downtrending – A look at The Bigger Picture
Over the last few years, the stock market has been growing steadily (save for a couple of small hiccups every now and then, like the selloff during the Sept-Dec 2018 period).
But then, a “thing” happened. A thing so significant, that it forced the economy into an (almost) complete shutdown. Of course, I am talking about something that we’re all familiar with – COVID19.
Everything closed down. People were forced to stay at home, and businesses suffered huge losses. We all saw it and experienced it first-hand.
As a result, the Stock Market comes crashing down. We saw consistent drops every day. So, the Fed steps in and ensures that interest rates remain low until the “storm passes”. A couple of significant (and I’m talking in trillions here) stimulus proposals also went through.
The Stock Market recovers rapidly.
Suddenly, the S&P 500 hits a record high and Nasdaq exceeded its all-time high by a whopping 25%+. So, what did people do? Every time the market dipped even slightly, they bought MORE. Bull markets do that to people
But then …
Stocks start going down again.
In less than three weeks, the S&P declines by over 7% and Nasdaq by 10%.
And these are the more stable indexes out there. It’s bad for everyone. I’m talking about major players like Amazon, Google, Microsoft Apple, Facebook.
What is actually going on and how long are we going to have to put up with it?
Should you buy?
Should you hold?
Should you sell?
Okay, so first, please calm down. Now is not a good time to panic. As a matter of fact, if you’re trading on the Stock Market, it’s never a good time to panic. You want to keep a cool head at all times. Let’s look at things rationally.
Whatever you do, DO NOT RUSH!
Also, please remember that on this channel, we look at the bigger picture. We think we talk, and we act long-term. In the short-term, anything can happen. In the long-term, the market always finds a way to balance itself out.
If you look at the historical data for any of these companies, you will see that they are still better off than they were, say, six months ago.
- Amazon (AMZN) was at $1692 and is now $3043(!!); Current Forward P/E – 57
- Apple Inc. (AAPL) was at $56 and is now at $110; Current Forward P/E – 27.55
- Google (GOOGL) was at $1054 and is now at $1442; Current Forward P/E – 26.88
- Microsoft (MSFT) was at $135 and is now at $203; Current Forward P/E – 31.05
- Facebook (FB) was at $148 and is now at $249; Current Forward P/E – 23.98
[source yahoo finance 22.09.2020]
So no, the Stock Market isn’t “dead”. The world isn’t ending. Now, we can finally take a deep breath and move on to the question on everyone’s mind:
Why is the Stock Market going down right now?
There are a couple of factors behind this:
- The political factor
- The UK is experiencing a second surge of COVID-19 cases
- Suspicious Transactions
- Debt and short-term trading
Let’s take a closer look at each of these factors.
Stock Market Downtrending Factor #1 – The Political Situation (in the US)
Yes, that’s right – the political situation does have an impact on the stock market. The US elections are almost here, and nobody is sure who will win. Different leaders can enact different policies, which can affect the stock market in different ways. And while I never discuss politics on this channel, we can’t ignore the fact that the uncertainty about the outcome is forcing the investors and analysts to play safer.
LPL financial studied this in-depth and found that, on average, the Septembers of election years yield negative Stock Market returns (their analysis goes back 70 years!). This is (again – on average) followed by volatile Octobers. By November and December, things usually quiet down, and things return to a balanced state.
Stock Market Downtrending Factor #2 – The COVID Implications (in Europe)
Don’t worry; I’m not trying to scare you with a “second wave” talk. This is just what the stats are showing. And, as we all know, investors care about the stats more than anyone.
The UK PM is hinting at the possibility of a new curfew, and the situation might get pretty bad for most businesses. So, there you have it – even more uncertainty.
Stock Market Downtrending Factor #3 – The Suspicious Transactions
Apparently, certain banks were involved in some shady money-laundering scheme that kept going on for … about 20 years.
Of course, all of this went on behind the scenes, and it only came out now. A recent leak reveals that some questionable money was moving around between 1999 and 2017 and none this was ever investigated before it came to light. So, either the banks just made a couple of mistakes and failed to keep tabs on the reports or … they were intentionally turning a blind eye because they were making a good profit. Either way, this made a lot of investors and analysts pretty uncertain in the situation.
Stock Market Downtrending Factor #4 – Debt & Short-term traders
Ever since the COVID-19 outbreak, the market has certainly become a lot more populated. The first quarter of 2020 saw a massive increase in freshly opened accounts in Charles Schwab and Robinhood.
Volatile markets like the one we experienced are also very attractive to margin traders, and this is precisely what we see right now. According to Yahoo Finance, about 43% of retail investors are currently trading with leverage (as of September 9th 2020). Rapid, short-term transactions push the market further towards volatility.
Now that we’ve cleared out the “Why” and “How” let’s talk about the “What”.
What is the Best Move for Long-Term Investors Right Now?
Personally, I am going to stick to my golden rule of Long-Term Investing – Do not rush in blindly. Do not worry about the short-term situation. Look at the bigger picture. Go for the long-term.
I am going to Buy and Hold. And I’m going to be patient. I’m going to buy in increments.
When I see stock prices going down, I don’t get scared. I get excited, because it means I might be able to buy more.
When the market is downtrending, the prices are likely to go down. This can allow me to make some great long-term investments. I’ll buy what I can afford and I’ll hold it.
And, if you aren’t brand-new to long-term investing, this shouldn’t come as a shock. We want to buy when the prices are low, hold until they recover and then sell once the price is right. That’s pretty much the entire long-term investing philosophy, summed up in one sentence for you.
I also agree with the analysts who say that the market is probably going to remain volatile for at least a month or two longer.
Let’s close this post with a quick recap.
As a long-term trader, I care about the bigger picture and the future. I don’t like short-term trading. I don’t like margin trading. I don’t like options.
I wouldn’t recommend going for the “low-interest loans” that are so popular right now, because they hold significant risk, especially if you rush head-first into some short-term deal.
Short-term changes aren’t scary for a long-term investor. We buy when the price is right for buying and hold until it becomes great for selling. The safest (and best, in my opinion) move is to keep an eye on the prices, buy what you can afford in increments and hold.
I hope you enjoyed this post and learned a bit more about the long-term investing mindset. Especially for the newer investors out there, I believe that this information is crucial. You should never, ever allow the short-term to scare you!
As always, please remember to give me a thumbs up and share the blog with your friends. I really appreciate it and it helps the channel grow. If you have any questions, feel free to ask in the comments section below – I love hearing from you!
Thank you all for reading, and until next time:
Stay green and motivated!
Suggested Further Reading:
- Budget Your Way to Financial Independence – How to save enough money to get started on the Stock Market
- Personal Financial Rules – Why financial independence is so important.
- Investment Blogs – More about investing.
Recommended books for further reading: