Reasons to be optimistic about the market despite a global financial meltdown
Chaos, everywhere you look in the market. The stock market saw its biggest one-day drop in almost a year and the crypto market is also crashing as investors look to de-risk.
In case you need a reminder in the darkest hours — the chart above is the US stock market since 1985. And if we look very carefully, we can find signs to be optimistic. According to FT:
- Corporate earnings are still strong despite slowing down due to COVID.
- GDP growth has slowed but many of the reasons holding back the economy (i.e. supply chain issues, Delta variant) are only temporary.
- The Fed is determined to keep interest rates low until they see inflation subside.
Don’t fear the dips: Market crashes lasted shorter and recovered faster in the past few decades than they did back in the 1900s.
Remember when markets crashed due to COVID? The market reached its bottom after just 23 trading days and fully recovered after a little more than 100 trading days.
According to Ben Carlson of Ritholtz Wealth Management, investors have reasons to believe bear markets will be different moving forward:
- New tools to fight recessions — After every crisis, the Fed brings in new tools which become expected for future corrections.
- Investor psychology is changing — And investors are more optimistic than ever which means more “buy the dip” mentality.
- Technology is distributing information faster — This has led to faster market reactions in both directions.
Suddenly, a 4% drop in the S&P 500 doesn’t seem as bad as a 30% plunge.