But that’s not necessarily the worst news for the market. Investors just need to do more homework again to find good bargains.
“Casinos are closed,” said Peter Malook, president and CEO of wealth management firm Creative Planning.
“The days of stimulus are over. Now it’s more of a thinking man’s market. Total speculation is dead,” Malook said, adding that traders can no longer pass blank checks on SPAC stocks, cryptocurrencies, no-nonsense Profitable tech companies and other VCs, like Hot Potatoes, hope others will catch them.
Stock picking seems a lot easier when the Fed is doing all it can to stimulate the economy. When central banks raise interest rates to cool off, many investors have no experience navigating markets.
“The world is realizing that zero rates are done,” said Max Wasserman, co-founder of Miramar Capital. “Rates are really low and people are taking excessive risk because the Fed will cut rates whenever stocks pull back. The message is to buy the dip. , because the Fed has your back. But the party is over.”
Forget the memes, focus on the fundamentals
“In the meme stock trading phenomenon of early 2021, the excitement of stock picking and an aggressive approach to investing strategies has reached new levels of popularity,” Ally’s chief market and currency strategist Lindsey Bell said in a note late last week express. “Right now, the stock market decline has some investors unhappy with this strategy.”
But Bell noted that investors who have done their homework can still “make smart investment decisions” as long as they maintain a “very hands-on investing style” and don’t panic.
“When stocks are down, a bear market is imminent, and volatility is high, hindsight is normal,” she wrote.
Stock picking itself isn’t dead, Wasserman said. It’s just that now is the time for investors to look for quality companies, even as interest rates rise, the economy could slow as a result.
“You can’t just keep throwing money into the air and expect everything to go up. When you buy an ETF, you’re just buying a basket of stocks and everyone is buying the same basket,” Wasserman said. “We’re not chasing what everyone else is chasing. There’s more volatility ahead and we’re hoping to take advantage of that.”
Wasserman specifically recommends blue-chip stocks with stable dividends and believes investors’ portfolios should be spread across sectors.
The good news — if you want to say that — is that the current market turmoil doesn’t mean a long-term bear market is necessarily ahead.
“It could be bumpy, but it’s not a crash. The whole turmoil could last less than a year and it’s already underway,” Malook said. “It’s not like 2000 or 2009. It’s a normal bear market.”
“The best place to build long-term wealth remains the stock market,” Malook added. “If you buy today, you might just have to hold your nose.”