The Week on Wall Street
Stock prices pushed higher last week as news of a White House plan to reopen the economy and reports of a potential COVID-19 treatment helped the market overcome weak economic data and an ugly start to the corporate earnings season.
FACT OF THE WEEK
Every year on April 22, Earth Day is recognized as the largest secular observance. This year marks the 50th anniversary of when 20 million Americans participated in organized protests and were credited with the launch of the modern environmental movement.
MARKET MINUTE
The Dow Jones Industrial Average rose 2.21%, while the S&P 500 advanced 3.04%. The Nasdaq Composite Index gained 6.09% for the week. The MSCI EAFE Index, which tracks developed overseas stock markets, slumped 1.75%.
Reality Hits
Until last week, the extent of the economic damage from COVID-19 lacked a lot of hard data. With the release of retail sales (down 8.7% for March), industrial production (down 5.4% in March), and new jobless claims of 5.2 million (bringing the four-week total to 22 million), the scope of economic trouble became clearer.
Stocks wavered throughout the week as investors digested the economic data and balanced the reports against signs that the pandemic may have peaked. With news of a plan to restart the economy and promising test results of a COVID-19 treatment, market sentiment turned positive, sending stocks higher on the final day of trading and cementing the second consecutive week of gains.
Corporate Earnings
Large banks kicked off the quarterly earnings season, reporting declines in profits as they hiked loan loss reserves and saw a contraction in consumer credit card use. The considerable loan loss reserves represent a sobering view on just how much the banks believe small businesses and consumers may be affected by the economic downturn.
Final Thought
With bank earnings reports, investors got an important – but limited – view of the state of the economy. This week’s earnings reports are expected to provide a much broader cross-section of the economy, with several consumer products, technology, industrial, transportation, and communication services companies reporting.
FINANCIAL STRATEGY OF THE WEEK
5 Tips For First-Time Investors During A Market Dip
Investing your money for the first time may feel overwhelming. At times, this is especially true if you consider the current worldwide pandemic and volatile markets. Before taking any action, it is important to ensure that you have your basic needs covered before you can safely determine whether or not it is the right time to make that initial deposit.
Establishing a financial plan and investment portfolio for the first time can be challenging, even more so amidst market volatility. Here are a few helpful tips for new investors to make the most of their money while getting started during a market downturn.
Emergency fund
Just because you want to invest does not mean you should dump every penny you own into the stock market. Set about three to six months’ worth of expenses and recurring payments aside in an emergency fund.
Excellent places to store emergency funds are in either a high-yield cash account or in very low-risk investments, and to ensure that you can access these funds if needed.
Having an emergency fund will give you the freedom to invest the rest of your money more aggressively.
Set your own pace
Investing a lump sum all at once can be scary. Even though studies show that a lump-sum investment will outperform two-thirds of the time, you may not feel comfortable doing that.
Another approach is to invest a little bit at a time. One of the best ways to do this is by setting up an auto-deposit, where you choose the amount and frequency to ensure you stick to your set pace.
Focus on your time horizon
Not all of your investments need to have the same risk level. You are likely investing for many different financial goals at the same time, like a home down payment, future college expenses, or retirement. Each of these financial goals likely has its time horizon and thus should be invested differently.
Generally, shorter-term goals should be invested more conservatively, and longer-term goals should be invested more aggressively. Breaking your investments into goals allows you to control your risk more efficiently and build a personalized investing plan.
Pay attention to historical context
As a new investor, you may not have much context or know what to expect in terms of performance. From 1854 to 2009, the U.S. experienced 33 economic downturns. On average, these downturns last for about 1.5 years. After each of the past recessions, the stock market has fully recovered and even surpassed previous all-time highs.
Market dips are unavoidable and are an inescapable part of investing; this is something that all investors, both new and experienced, should learn strategies for how to cope.
At times, many of us may feel the temptation to withdraw our investments or even halt your auto-deposits; however, history has shown us that the market, and thus your portfolio, will recover.
Focus on what you can control
You cannot control the stock market. Nor can you control the news, inflation, GDP growth, or unemployment rates. However, you can control how much you save, how much risk you take, staying diversified, and how you react when markets get scary. In the long run, focusing on what you can control, and doing your best to ignore what you cannot control, is likely to give you better odds of investing success.
Ultimately, being thoughtful about your finances and overall risk in your portfolio during market uncertainty can help you weather the storm, no matter how long the downturn.