U.S. stocks fell for the second week in a row. Now it’s earnings season, which is the quarterly period when companies file their financial reports with the Securities and Exchange Commission (SEC). The period typically reveals profits and losses and whether those were in line with the market’s expectations, so some investors pay attention to earnings calls.
Pro Tip
When there’s volatility in the stock market, the best course of action is to stay aware and stick to your investing plans. It’s impossible to time the market, and historically speaking, it’s always recovered. Stay the course through the dips and peaks, and remember why you’re investing.
Consumer prices are 8.5% higher than this time last year, meaning basic living expenses cost more and money doesn’t go as far. While this is a classic marker of inflation, investors are hoping the worst is behind us, especially as the Fed works aggressively to fight it with more planned interest rate increases.
And Elon Musk made a $43 billion cash offer to buy all of Twitter this week. That sent both Twitter and Tesla stocks down, so it seems investors aren’t too keen on the idea.
Here’s what the news means for you:
- So far this earnings season, it’s been a mixed bag. Goldman Sachs, Citi, Morgan Stanley, and Wells Fargo were the first large U.S. banks to report. All four beat estimates but reported steep losses. Next week, Bank of America, Charles Schwab, and BNY Mellon are due to report, along with blue-chip companies including IBM, Netflix, Tesla, and Johnson & Johnson. This will give investors an idea of how big companies are performing so far this year in light of world events like inflation, shifting energy and oil prices, and Russia’s invasion of Ukraine. “I feel like the sell-off we’ve had in the last couple of weeks is ahead of earnings,” says Linda García, founder of In Luz We Trust. That, she says, can be a good sign because if earnings are low, we won’t see much more sell-off. And if earnings go well, we can actually see a recovery.
- Consumer prices measured by the Consumer Price Index (CPI) rose by 8.5% in March — the highest jump since December 1981 — driven by rising food, energy, and shelter costs. But the core CPI, which excludes food and energy, went up only 0.3% for the month, which is less than the 0.5% estimate. That’s giving some hope that inflation is easing up and that March was the peak. Investors like to hear this because it gives hope that market conditions will improve from here.
- Elon Musk envisions Twitter can be “transformed as a private company” and offered to buy it — yes, the entire company — for $54.20 a share, or $43 billion. This comes a week after he revealed a 9.2% stake in the company, and he claims it’s his best and final offer. If it’s not accepted, Musk says he’ll have to consider walking away as both a member of the board of directors and a shareholder. That sent Twitter’s stock up and down, ultimately posting a loss for the day. “As an investor in Tesla, I’m not happy about this hostile takeover,” García says, referring to the Twitter offer. Experts and shareholders seem to agree, but it’s ultimately up to Twitter, which responded that the company would review the proposal.
How Investors Should Deal With Stock Market Volatility
For new investors, big swings in the market can be a lot to handle. There’s a lot of uncertainty right now because of interest rate hikes, increasing real estate prices, and everyday commodities getting more expensive because of inflation — and the market reflects that on a day-to-day basis.
But if you have a buy-and-hold strategy with low-cost, broad-market index funds, remember that slow and steady wins the race. The best performing portfolios are ones that have the most time in the market.
“The most important thing is to always remember what you’re investing for,” 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-term time horizon, historically the stock market goes up. And when that’s the case, it’s important to have the discipline to keep dollar-cost averaging your [investments].”
Dollar cost averaging spreads out your deposits over time, and has demonstrated that it performs better “during a period of high market crashes,” says Rebecka Zavaleta, creator of the investing community First Milli.
Whatever you do, invest early and often, especially if you have a long investment timeline. Dips and crashes will happen, and so will other scary-sounding things like economic bubbles, bear markets, corrections, death crosses, and recessions.
You can even take advantage of a dip to invest more, but not if it impacts your regular investing schedule, Muñoz advises. It’s hard to tell when there’s going to be a dip or correction, and “not even the best investors in history can time the market.” The smartest advice is to stick to your plan and keep investing.
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