Investing has boomed over the last couple of years, with the stock market on a pretty good run. From individual stocks to ETFs to crypto — investing has felt like a good way to grow your money.
But the past few months have seen a downward trend. In May, Dow Jones Industrial Average and Nasdaq saw their worst declines in a single day since 2020, and the S&P 500 index hit its lowest in a year. Many of the big name tech stocks have been struggling, turning a lot of portfolios a distinct shade of red.
The stock market differentiates two types of declines that we’re also seeing now — if the market is down 10%, it’s a market correction; if it’s down 20% or more, it’s called a bear market. In May, the Nasdaq-100 index (100 biggest non-financial companies listed on Nasdaq) is already in bear market territory, the S&P 500 (500 biggest companies in the US) is down 18% — meaning it’s getting close to bear territory.
While there are lots of reasons behind the declines, here’s two I find very interesting:
- It’s earnings season — which always brings some amount of volatility into the market. This time around, a lot of companies have reported really good Q1 earnings results — but they’ve also had to reduce their forecasts for the next quarters. They don’t know what will happen to business during uncertain times, but they’re expecting to earn less money, or acquire less customers. And that lowers analysts’ confidence, and in turn, brings down valuations.
- The Fed is hiking up interest rates in the US to combat the high inflation rate — which you’ll have seen as a reason behind market movements if you follow our Lightning Updates in the app. Higher interest rates mean that borrowing money becomes more expensive for everyone, even tech companies and big corporations. And when it gets more expensive for them to grow their businesses, their valuations go down.
Volatility is part and parcel of investing. If you’re in it for the long term, there’s no need to panic.
Market declines aren’t that uncommon. Historically, the stock market has been on an upward trend and almost every expert will tell you that’s what will eventually happen this time around as well.
I’m personally looking for outcomes for my investments in 10-20 years. When I started investing seriously in the summer of 2021, the market had already gone up over 100% in the past 5 years. So I assumed that we’d be seeing a correction soon — whether that would be in a week, or another 5 years, I didn’t know.
The state of the market at that time defined my strategy and for my own ease of mind I started investing smaller amounts periodically. I still invest a fixed amount every week. For me, this is only sustainable with Lightyear as banks charge way too much on individual transactions for me to invest once a week. Of course, it’s not fun seeing the money I put in go down almost immediately, but I’m confident that my approach works for me and I’m here for the long term.
As a long term investor, stock prices going down can give you an opportunity to buy shares in companies you really believe in at a lower price.
In the Lightyear app, we show you all the data and metrics for 3,000+ stocks to help you make smart, informed investment decisions.
We show you professional-grade analyst ratings, where analysts from big investment banks submit their suggestions on whether to buy, hold or sell a stock at a given time. You’ll also find analyst price targets in the app. These are analysts’ projections of a stock’s future price. All of this data will hopefully help you make informed decisions, even when your portfolio gets you down from time to time.
This article should not be construed as investment advice. It is my own personal investment journey and observations of the stock market right now. When you do decide to invest, make sure to do your own research and remember that your capital is at risk.