April was the stock market’s worst month in two years. Why investors should stay the course
April was the worst month for the stock market since March 2020, and it was also bad, even by historical standards. It was only the second of April with losses over the past 17 years.
The historically bad month was boosted by inflation, Federal Reserve interest rate hikes and a mixed bag of reports in the heart of earnings season, experts said. But while all of this news may sound gloomy, it will be in investors’ best interests to remember that volatility is normal and the key is to stay the course, not panic, and keep investing. It might also be a good time to remind yourself that over the past 50 years, the stock market has risen 10% each year, on average.
The big news this week is that Elon Musk, the richest person in the world, has bought Twitter in a deal worth an estimated $44 billion. The agreement could be concluded as early as October. Musk has made it clear that he plans to take the company private. But what does it mean if you have Twitter shares in your investment portfolio? For investors, this means Twitter shares will be paid for and the company will no longer trade on the open market. More on that below.
This week was also a big week for earnings reporting. Earnings reports are financial statements (usually quarterly) for publicly traded companies. The Dow Jones, which is mostly made up of blue-chip stocks, which are big companies like Coca-Cola and Disney, saw its biggest one-day drop since October 2020 but then rose sharply. That means investors are scrambling to figure out how to deal with these new earnings developments, especially as heavyweights like Amazon and Apple hit speed bumps this quarter with disheartening earnings. Amazon saw slow growth and high costs in the first quarter. Apple posted strong growth but warned of challenges in the second quarter due to COVID-19.
Here’s more on the biggest stock market news this week:
- It’s been a big week for Elon Musk. Twitter’s board unanimously approved his offer to buy the company and take it private. This means it will add Twitter to its collection of companies, which include Tesla, SpaceX, Starlink, Neuralink and The Boring Company. Twitter founder Jack Dorsey said Musk “is the singular solution I trust” in a Tweeter this week. If you own shares of Twitter, you’ll receive $54.20 in cash per share if the deal is formally closed on the terms that have been made public. The company will also be delisted from the New York Stock Exchange. If you invest in broad index funds, you are most likely indirectly invested in Twitter. Either way, this will be a taxable event, so you’ll want to track the sale, as you’ll receive payment. The company will continue to trade until the deal closes, but keep in mind that if you buy shares for more than $54.20, it could result in a loss once the deal closes.
- This week of earnings season, shares of Amazon and Google fell on bleak forecasts and slowing growth, along with Robinhood and Intel. For Amazon, it was the first quarterly loss since 2015. But shares of Meta (Facebook’s parent company) jumped nearly 20% for the biggest daily jump in nearly nine years. This follows Netflix’s disastrous earnings report last week. The company lost 200,000 subscribers in the first quarter. The company predicts that it will lose another 2 million subscribers in the second quarter. If you own an S&P 500 index fund, you’ll likely see Amazon, Google, Meta, and Tesla among the top 10 holdings.
- The US central bank meets May 3-4 and is expected to approve interest rate hikes in its effort to curb inflation. But these inflation-fighting measures may also have negative implications for some investors, especially those who like to invest in growth and technology stocks. “We have all these mega-caps that are going to be affected by this,” says Linda García, founder of In Luz We Trust. These companies tend to have high price-earnings ratios and are valued on a forecast basis. When rates rise, their perceived value falls, as does stock price, which means a loss for shareholders.
Stock market performance changes every day in response to a variety of events, both domestically and internationally. Investors, and therefore stock prices, react quickly to news, and a lot is happening. Everything from the war in Ukraine to runaway inflation has spooked investors in recent weeks. Many April trading days saw large swings of more than 2% up or down, which is particularly volatile for the stock market.
But volatility is normal. If you’re a long-term investor, the ups and downs of the stock market shouldn’t worry you. As an investor, experts say it’s always the best strategy to stay in the market for as long as possible, without panicking when the going gets tough. The best investment portfolios are often those that have been in the market the longest. Don’t be tempted to sell your investments when the going gets tough. Stay the course and remember why you are investing.
García explains that the market and first-quarter earnings are still reacting to events that happened from December to January, including the Omicron outbreak in the United States. “They are currently reporting on the previous quarter. We still have to take into consideration all the bottleneck issues we had with the supply chain,” she explains. “More telling today will be next. series of results for the second quarter”, which means that today’s event will continue to have a ripple effect for some time.
The market is always looking forward and reacting quickly. As an investor, you also need to be forward-looking, so stay the course and keep investing.
“I’m excited to continue to grow my portfolio,” says García. “If we know anything from the past, tough times are the best time to start buying. It’s a good time for new investors to enter the market.
How Investors Should Handle the Rise and Fall of the Stock Market
For new investors, large market swings can be difficult to manage. There’s a lot of uncertainty right now due to rising interest rates, rising house prices and rising commodity prices due to inflation – and the market reflects this on a day-to-day basis.
But if you have a buy-and-hold strategy with broad, low-cost index funds, remember that slow and steady wins the race. The best performing portfolios are those with the longest time in the market.
Even – and especially – when the stock market is volatile, the best thing to do is to be aware, but stick to your investment plans. It is impossible to time the market, and historically speaking, it is always recovered. Stay the course through the dips and peaks, and remember why you’re investing.
“The most important thing is to always remember why you are investing,” says Thomas Muñoz, associate financial life advisor at Telemus, a financial advisory firm. “Short-term volatility is obviously something people should be aware of. But if you have a long time horizon, historically the stock market goes up. And when it does, it’s important to have the discipline to maintain the average dollar cost of your [investments].”
Dollar cost averaging spreads your deposits over time and has been shown to work best “during a period of high stock market crashes,” says Rebecka Zavaleta, creator of the First Milli investing community.
Whatever you do, invest early and often, especially if you have a long investing schedule. Dips and crashes will happen, along with other scary things like economic bubbles, bear markets, corrections, death crosses, and recessions.
You can even take advantage of a downturn to invest more, but not if it impacts your usual investment schedule, advises Muñoz. It’s hard to tell when there will be a decline or a correction, and “even the best investors in history can’t time the market.” The best advice is to stick to your plan and keep investing.