The stock market could crater again. Here’s why investors shouldn’t worry

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Wall Street and the New York Stock Exchange in New York.

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The stock market has defied gravity in recent weeks, rebounding almost as fast as it sold out amid the coronavirus pandemic.

The threat of another sharp drop is ever-present. But stock market investors shouldn’t worry, experts say.

In fact, panicking and selling stocks if the market craters again could cost investors dearly.

“When the heat turns up and things look risky and scary, that’s where your biggest potential returns as a stock market investor will be,” Fitzgerald said.

Stock market rebound

the S&P500an index measuring the performance of stocks of the largest public companies in the United States, fell 34% between mid-February and March 23 as investors grew jittery amid a worsening coronavirus pandemic.

It was the fastest decline of its kind in history.

However, it was followed by the best 50-day rally in S&P 500 history.

The stock index is up about 38% from its low, within range of completely erasing its recent losses. (To break even requires a larger percentage gain than the previous percentage decline.)

Indeed, fleeing the stock market for cash could cost investors dearly in the long run.

An investor who put $10,000 into the S&P 500 in early 1999 and left it alone would have seen that investment grow to nearly $30,000 by the end of 2018, according to analysis by JP Morgan.

By contrast, missing the 10 best-performing days over that 20-year period would have cut those returns in half.

Speculate vs. invest

Stock investors pushed the market higher as states began to reopen their economies, raising hopes that consumer spending will pick up and give struggling businesses a boost.

However, that sentiment could sour – and cause another big sell-off – if a second wave of Covid-19 pushes states to reimpose strict social distancing rules.

Some health officials fear large nationwide protests over the death of George Floyd while in police custody could be a “seeding event” for other outbreaks.

“Widely, [market] the sentiment hasn’t deteriorated that much,” said Robert Jenkins, head of global research at Lipper. “But there are potential influencers who could turn the tide.”

Investors may also be spooked if Congress does not pass additional financial relief measures, such as the extension of larger unemployment benefits or another round of one-time stimulus checks, which would put more money in the pockets. pockets of Americans.

Most likely, the next selloff will come from an unforeseeable event, Fitzgerald said. But long-term investors should stay the course.

“Once you go in and out, you’re speculating and flipping coins,” Fitzgerald said. “It won’t work 50% of the time and it will work 50%.

“Don’t be a speculator,” he added. “Be an investor.”

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