The Finatical
Week of August 2nd, 2022 - Stock Market Crashes, A Bearish S&P 500, Bitcon's Bullish Run
Topic Breakdown - Learn about Stock Market Crashes
Introduction
If you are an investor in the stock market, chances are, you’ve probably lost some money in the past few months. Today, we will learn what a stock market crash is, how to prepare for it, and what to do if the market crashes. Today is August 2nd, and in the year to date, the S&P 500 index has fallen by close to 14%. To put this into perspective, the S&P 500 usually has an average yearly return of around 10%, so it has fallen a lot this year. So what is a market crash? A stock market crash is a sudden and often unexpected drop in share values. This is often characterized as a decrease of at least 10% on a major index like the S&P in a single day or over a few days. A stock market collapse may be brief, with prices returning in a matter of days or weeks. A crash, on the other hand, might signify the beginnings of a lengthier decline that can last months or even years. The decline in share prices we are experiencing today cannot really be classified as a “crash,” but the market has struggled a lot compared to the average year. While we won’t get into the many complex reasons as to why this is happening, we will cover how to prepare for one, and what to do in the event of a crash.
Preparing and Responding
The first step in preparing for a potential crash is to not take out your money from the market just because you anticipate a crash. The problem is that no one can accurately forecast the market's highs and lows. The stock market may remain strong for a long time. If you avoid investing out of fear or in the hope of buying when the market falls, you may miss out on large returns. And if you sell out after the market has already collapsed, you will lose money or significantly reduce your gains. Also, have an emergency fund of at least six months' worth of costs. If you're concerned about a stock market meltdown, the smartest investment you can make is an emergency fund. You need a cash reserve in case of a large expense or job loss shortly after the market has crashed. If you've previously made a lot of money on hazardous investments like bitcoin or penny stocks, think carefully before investing again. Because these investments are even more volatile than the general stock market, your losses in the case of a crash might be very severe. Finally, think about what you would do if the market crashes. Taking out your investments will solidify your losses, and remember, you do not lose or gain any money until you sell. If you have the courage for it, a stock market crash might be a terrific time to invest more. You might set aside more money to invest when the stock market falls if you have a healthy emergency fund and are saving for retirement.
The Worst Case
If the stock market actually does crash, here is a tip: You probably shouldn’t do anything. A stock market crash can cause panic, but it's best not to make significant financial choices out of fear. Unless your financial situation has substantially altered, you should continue to invest in your 401(k) following a crash. Also avoid monitoring your account on a daily basis because it's never fun to see your net worth plummet. However, if you do not sell your investments at a loss, you have not lost money. Your finances will ultimately recover with time and patience.
Financial Trends
A Bearish S&P 500
The S&P 500, also known as the Standard and Poor’s 500, is a stock market index where it tracks the performance of 500 large companies listed on the exchange in the United States. It is one of the most successful stock market index predictors and has made millions of Americans millionaires, however, this Friday, the S&P 500 declined by 1% to 3,961.63 points. The key reason for the S&P 500 to drop in its value was because of an earnings miss from Snap, which resulted in the company’s shares falling by 39.1%. A chief investment strategist at CFRA Research said, “Snap has managed to snap the uptrend in the Nasdaq by reporting disappointing earnings, which has created a cascading effect on the S&P 500.
This is just an example of the volatility that investors should expect as earnings are reported and can cause fluctuations in prices in response to better than or worse than results.” Despite the S&P 500’s struggle with Snap, about 21% of S&P 500 companies have reported their earnings so far and 70% of those companies beat the predictions of financial analysts. The service and manufacturing sectors suffered the most as they fell by 47.5 points, indicating a contracting economic result in the nation's economy. Currently, the market expectations are very low due to the S&P 500’s latest drop and have led to certain market analysts not believing that the bear market is over.
Bitcoin’s Bullish Run
Bitcoin was finally able to bounce back $24,000 for the first time in more than a month, as cryptocurrencies are hoping that the Fed will impose less aggressive interest rate hikes. Cryptocurrency traders took advantage of the softer policy action that the Fed set in place for cryptocurrencies. However, the effects of the Fed imposing tighter monetary policy from the U.S. central bank have had negative impacts on crypto. The CEO of crypto lender Nexo, Antoni Trenchev commented, “Bitcoin is still down roughly 50% since the start of 2021. The recent bounceback for Bitcoin is not a sign that this is the end of the crypto bear market, but a relief rally for Bitcoin. Bitcoin is beginning to find its feet after a shaky month, and the following weeks will be telling.”
The U.S. central bank is expected to raise interest rates once again but economists are forecasting a less aggressive increase of 75 basis points instead of 100. The cryptocurrency market still needs assurance for deceleration in the pace of rate when the Fed decides to hike interest rates, but nevertheless, the short-term outlook for Bitcoin is looking like a bullish market and could go as high as $29,000 in value. Crypto has been under a lot of pressure to sell in the past few months, as the collapse of some of the notable ventures caused a domino effect in the market.
Financial Guidance
“Alone we can do so little; together, we can do so much.” ― Helen Keller
The reality of the world is that it’s hard to achieve things on an individual level, so while you should be able to stay independent and non-reliant on others’ help, it’s also important to surround yourself with people with similar goals and ideals as you.
Term of the Week
S&P 500 - You often hear this term mentioned when discussing the stock market or investing, but what actually is it?
The S&P 500, which stands for the Standard & Poor’s 500, is a stock index that tracks the performance of the 500 biggest companies in the US Stock Market. It takes into consideration each company’s market valuation and gives greater weight to the companies that have a higher valuation. Due to this, it is preferred by many economists as a more accurate representation of the current US market compared to other indexes such as the Dow.