Panic Is Not an Investment Strategy
It’s been a dizzying ride on Wall Street lately, as the mood alternates between panic and optimism.
On Monday, the markets resembled a bungee jump. The main U.S. indices initially plunged, before reversing course in the afternoon. The indices closed as follows: The Dow Jones Industrial Average +99.13 (+0.29%); the S&P 500 +12.19 (+0.28%); the NASDAQ +86.21 (+0.63%); and the Russell 2000 +45.59 (+2.29%). Trading was extremely volatile; the Dow was down 1,115 at the low.
In pre-market futures contracts Tuesday, stocks were in the red, again in choppy trading. The CBOE Volatility Index (VIX), the so-called fear index, was rising for its sixth consecutive session. The VIX is hovering at its highest levels since early December 2021.
Panic makes you stupid…
Panic arises from the brain’s amygdala, one of the most primitive regions in the human mind. The amygdala is called the “fear center” and when it kicks in, it overrides the prefrontal cortex that handles logic and decision-making. When in panic mode, you lose the ability to think clearly and solve problems. You lose all creativity, even your sense of humor. You become, in a word, stupid.
The stock market sell-off in recent days has been brutal. We’re seeing signs of panic on Wall Street. But don’t follow the stupid money.
Stay calm. Maintain a diversified portfolio. Rotate into stable companies that provide services that are consistently used regardless of market or economic conditions. Even when consumers cut back on discretionary spending, they’ll still pay for essential services to keep the lights on, the water running, and the media streaming.
Selling during a downturn is a rookie mistake. It’s the opposite of buying low and selling high.
Inherently strong stocks invariably bounce back. Keep plenty of cash on hand, to scoop up the bargains that are sure to arise when this market swoon subsides. This downturn will generate rare buying opportunities. Consider using stop-losses for any additional stock purchases.
We don’t need a green market to help our readers make money. Our methodologies can guide us whether the market is up or down. Rest assured, our team of strategists will stay vigilant. We don’t get too hung up on day-to-day stock movements. We stay focused on fundamental changes that could make or break one’s investment portfolio.
Below, I steer you toward a trading system that can guard as well as enhance your hard-earned wealth. But first, let’s examine the increasingly dangerous investment context.
U.S. equities sold off last week, falling for a third straight week to start 2022 on a dreary note. The worst headwind right now is the Federal Reserve’s hawkish policy pivot, with its first rate hike slated for March. Geopolitical tensions in Ukraine also are dampening investor moods.
All eyes are on Wednesday, when we’re scheduled to get a statement from the Fed’s policy-making Federal Open Market Committee (FOMC), as well as a press conference from Fed Chair Jerome Powell. Investors are concerned that the Fed may get too aggressive in trying to fight inflation and thereby risk a recession.
As the following table shows, Thursday and Friday will be crucial days for the release of new economic data:
Another big event occurs Thursday, January 27, when bellwether tech firm Apple (NSDQ: AAPL) announces first-quarter 2022 earnings. Apple could very well beat expectations; the tech behemoth’s management has stated that worries about the company’s vulnerability to supply chain disruptions are “overblown.”
However, if analysts find something to dislike in management’s guidance, the entire tech sector and broader market are likely to react negatively.
For cryptocurrencies in the aggregate, January has brought a bloodbath. The decline in cryptocurrency markets has occurred in tandem with the selling we’ve seen in higher risk assets such as tech stocks, as investors dread Fed tightening.
Bitcoin (BTC), the best-known cryptocurrency, is down about 20% year to date, after hitting a record high in November 2021. Meme stocks also have been hard hit.
Get cautious. Avoid investing in fads. Crypto, non-fungible tokens…to me, they resemble Ponzi schemes. Stick to quality.
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John Persinos is the editorial director of Investing Daily.