Global stock markets are in absolute turmoil as the COVID-19 pandemic wreaks havoc around the world. Few investors have ever experienced the extreme volatility the past month has brought as a significant share of normal economic activity has been grinding to a halt. Major market indexes like the S&P 500 and Dow Jones Industrials have made more daily swings up or down by 5% in the past few weeks than they had in the prior 12 years.
Since the stock market set a record for the fastest 10% decline in history in late February, it has broken that record at least two more times, and even lost more than 10% of its value in a single day on March 11.
Image source: Getty Images.
It’s enough to make you want to pull everything out of the market and hide in a cave for six months until things return to normal — whatever normal will look like on the other side of this.
Yet if we can look beyond this rising emotional and financial turmoil, history tells us that, now, with the market in an extended period of panic, is when we should act aggressively as buyers.
The historical case for buying now
As of noon Friday, the S&P 500 index is down about 29% from its 2020 peak, and almost three years worth of gains have been wiped out:
And let’s be honest: Most of us expect stocks will continue to fall. We don’t even know how bad things really are out there yet, because there isn’t enough up-to-date economic data, but we know the travel and hospitality industries are all but shut down, sports leagues are closed for the foreseeable future, and in many parts of the country, pretty much all businesses that are open to the public but not essential to our well-being are being forced to close their doors or seriously curtail their operations.
But what we don’t know is exactly how stocks will behave. Yes, they probably will fall more, but it’s a mistake to try too hard to be precise about when to “get in” during a market crash. A look at the long-term returns of the S&P 500 should help put that into better context:
As you can see in the chart above, every major stock market crash presented people with an opportunity to invest; and even investors who bought in the middle of a crash and watched stocks fall even further before they recovered still profited enormously.
Avoiding the fallacy of “catching the bottom”
Let’s use the 2007-2009 Global Financial Crisis as an example. On Nov. 20, 2008, the S&P 500 was at 752.44, down 52% from the pre-crash peak it hit in October 2007:
This was during the heart of the worst financial crisis the world had faced in 80 years. Over the six weeks that followed, stocks began to recover, but that recovery faltered, and by March 9, 2009, stocks had fallen 28% from their January peak:
A lot of people who bought during the late-2008 low probably felt like geniuses for a month or two, before feeling like idiots for having “gotten in too soon” after the market fell sharply once again.
But whether they bought near the first bottom in November 2008 or the actual bottom in March 2009, those investors have done incredibly well. The S&P 500 is up 212% from the first bottom, and 248% from the final bottom in March 2009. And when you add in the dividends paid, the total returns surge to 303% and 342% respectively.
To put it bluntly, don’t let the fear that an investment might look stupid in a few weeks or months cause you to miss out on what should prove to be incredible market returns over the next five, 10, or 20 years.
Don’t have cash on hand to invest? Do this instead
Even if you don’t have a pile of cash set aside to invest in the market right now, there’s a good chance that, like tens of millions of other Americans, you have a retirement plan at work. If that’s the case, it’s probably a 401(k) or similar plan that allows you to contribute a portion of each paycheck automatically.
If that’s the case, the best way you can make the most of this market crash is to simply crank up your contributions as high as you can for now, and direct those contributions to low-cost, broad market index funds such as the SPDR S&P 500 ETF Trust (NYSEMKT:SPY), the Vanguard S&P 500 ETF (NYSEMKT:VOO) or the Vanguard Total Stock Market ETF (NYSEMKT:VTI). Chances are, your 401(k) offers a fund that is similar in makeup and fees to one of those.
Don’t aim for precision: Buy aggressively
It’s tempting to tell yourself you should wait just a little longer because stocks will fall more. They very well could — and to be honest, I think they will. However, we don’t know whether that will prove true or not, and as the charts above make clear, even an investment that looks bad in the short term should prove quite profitable in the fullness of time.
I’m not just preaching this message: I’m acting on it myself. I’ve made numerous investments and plan to continue aggressively buying. My wife and I have also doubled our 401(k) contribution rates and will maintain those levels as long as we can.
Whether you have the cash on hand to deploy into stocks or are only able to crank up your 401(k) contributions, now is the time to start acting if you want to profit from the market crash of 2020.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
