No Time To Panic

Tech stocks crashing? Stop panicking and pull yourself together. On Sep. 3 and 4, the stock market saw its biggest drop since March with the S&P 500 falling over 4%. The main culprit, tech stocks. The Nasdaq Composite, a major index representing tech stocks, dropped close to 10% over the 2 days while other sectors saw losses of 0-3%.

What caused the selloff? There is no single cause. However, market strategists believe that investors are moving money out of technology stocks to protect themselves from deteriorating US-China relations. Others speculate that investors are finally realizing that tech stocks are overpriced and have begun to take their profits from the stock market.

No reason to panic yet… Although the Nasdaq dropped close to 10% within 2 days, these were the price levels that we saw back in Aug. 21. This “crash” only set investors back 2 weeks… That is, as long as investors are not leveraged or playing with riskier investments like options.

Looking beyond the wreckage

The rapid increase in stock prices since March have led some investors to forget that stock markets both rise and fall. Market corrections, a sudden decline in prices of 5-10%, is perfectly normal. It’s unlikely that we’ll see the market fall as much as the crash back in March, when major stock indexes dropped over 30%. However, investors should be prepared to see more volatility over the next couple of months before elections start.

(TAJ: How will the presidential elections impact the stock market?)

Kerry Craig of JP Morgan Asset Management believes there could be further selling before the US presidential election in November. More investors will start to take profits before an election as elections tend to bring uncertainty to stock markets.

• Brace yourselves… The common consensus amongst fund managers and analysts is that the market is in for a bumpy ride over the next several months.

If tech stocks make up a large portion of your portfolio, it may be time to think about diversifying into other sectors. See why it may be time to buy into cyclical stocks and why some investors are favoring banks.