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Investors are concerned about rising prices. Here’s how inflation works, how it affects stocks and mutual funds, and how you can protect your money.
TODAY IN THE USA
“The trend is your friend, until it ends,” say stock market veterans. Even with Wall Street at all-time highs, some investors are concerned that this could happen soon. According to analysts, a shift has occurred beneath the surface of the stock market in recent months, putting all-time highs in stocks in jeopardy. This is something that Wall Street watchers are concerned about: Fewer stocks are participating in the market rally, which is frequently interpreted as a red flag for investors. So, how does that look? Take, for example, that the percentage of NYSE common stocks trading above their 30-day moving averages dropped to 45 percent on July 2, down from 83 percent on May 7, according to Lowry Research, a technical advisory service. Analysts predict that stocks will be choppy in the coming months as a result of this. Will there be a pause in the stock market? Here’s what the second half of 2021 could look like for your retirement investments Stocks post record run under Biden: Here’s what could happen next So does that mean for trouble for your nest egg? Not necessarily. So don’t freak out just yet. Despite concerns about the economic effects of the Delta coronavirus variant’s spread and concerns about how the Federal Reserve will react to rising inflation, analysts say the stock market has remained resilient. So far, the S&P 500 has recovered 90% of its losses since the pandemic began. Money managers say that any weakness could be an opportunity to buy more stocks at lower prices, or at the very least hold steady in your retirement accounts. Don’t become your own worst enemy by letting emotion dictate your investments, even if the trend stops being your friend. I recall how stocks plummeted in October 2018 due to concerns about the state of the global expansion. The next few months were choppy, and then stocks plummeted in December, putting the S&P 500 on the verge of a bear market after a nearly 20% drop from its peak. Some investors panicked, but markets quickly recovered in the weeks after the bruising sell-off and staged a dramatic turnaround. According to one analyst I spoke with at the time, the correction had been building for months but was only temporary. My friends sold a few stocks they owned when their emotions got the best of them. However, once the stock market regained its footing, they quickly regretted their decision. There may be some stumbling blocks along the way, but hold on tight. A cool head will come in handy now to help you think in unconventional ways. “You want to be the most greedy and hungry to buy stocks when prices are down rather than up,” says Sam Stovall, chief investment strategist at CFRA. “It’s better to buy than it is to bail.” Stovall added that for long-term retirement savers, history suggests that it’s best to stay the course. Courtney John, 33, a community recreation director for the city of Saint Paul, Minn., can attest to this. She and her chiropractor husband, Spencer, are unconcerned about the market’s potential twists and turns this year. They’re in it for the long haul, and they’ve been putting their stimulus money into Roth IRAs for the past year. They both have a company-sponsored retirement plan to which they contribute. They both benefited from a reprieve in federal student loan payments during the pandemic and were able to secure a low mortgage rate for their dream home last fall, despite their student loan debt. As a result, they aren’t paying attention to the daily stock market fluctuations for the time being. “We’re not even in our thirties yet. We have decades to get on board the ship “John, who continues to contribute to her retirement accounts on a regular basis, agrees. “If something goes wrong, we have plenty of time to make amends.” The current state of the market According to Bespoke Investment Group, the S&P 500, the benchmark used by most mutual funds, recently set ten new closing highs in a span of 12 trading days, which is unusual over the past half-century. This could bode well for Wall Street in the second half of the year. Bespoke data shows that after stocks hit new highs in clusters like this, median returns over the next six and twelve months were 5.5 percent and 14.4 percent, respectively. Market observers, on the other hand, point to a larger issue: Fewer stocks are making new all-time highs. So, why should you be concerned? Over time, market breadth, or the number of stocks participating in a rally, has remained strong. What evidence do we have? The average price of stocks over a 200-day period is calculated using the 200-day moving average. More than 90% of S&P 500 stocks are currently trading above their 200-day moving average. It’s a smoother number that takes a step back and shows how things appear from a higher vantage point. Shorter-term indicators, on the other hand, paint a different picture and point to weakness in the coming months. For example, according to Lowry Research, only 31% of the 147 sub-industries in the S&P 1500, which encompasses more than 90% of the overall market capitalization in the US stock market, traded above their 50-day average through Thursday, down from 90% on May 7. Stocks with fewer new highs are like a canary in a coal mine: they indicate how market conditions may change. According to analysts, this indicates that a stock market decline is on the way. (Photo courtesy of Getty Images) So, when will there be a greater pullback? According to CFRA, the S&P 500 has been without a decline of 5% or greater for 293 calendar days as of Tuesday. This defies historical precedent. The average length of time since World War II is 178 calendar days. On average, the stock market loses around 5% of its value per year. According to economists, this makes the market more vulnerable in the short term due to symptoms of investor complacency. No one can predict when the next large downturn will occur, but so-called market “technicians” keep an eye on these indicators to see if the trend is beginning to shift. In the short run, several analysts are concerned about the stock market’s lack of breadth. When only a few industries are driving the market’s growth, analysts become more pessimistic about the market’s future direction. According to Stovall, a carriage carried by 20 horses is more likely to travel faster and farther than one pulled by only two horses. The financial, industrial, and materials sectors, which were standouts earlier this year, have struggled recently, while technology, which has benefited from the stay-at-home economy, has recovered after faltering in recent months as investors shifted away from growth stocks and toward value companies. Because Big Tech makes up such a large chunk of the S&P 500, its performance can have a disproportionate impact on the index. But, according to Willie Delwiche, investment strategist at market research firm All Star Charts, technology leading the way isn’t necessarily a negative thing in the long run. “When tech leads the broader market upward, it’s not an issue,” Delwiche says. “If the rest of the stock market doesn’t follow, it’s a problem.” At the moment, the stock market’s defensive sectors, such as utilities and consumer staples, aren’t leading the push. These “safety stocks” pay consistent dividends, which make them more appealing during times of economic instability. Delwiche said that if they were currently pushing the market higher, it would be a red flag. As the economy improves, stocks are expected to profit. To be sure, a bear market, defined as a decline of at least 20% from record highs, is unlikely to occur anytime soon, according to economists. As the economy recovers from the epidemic, the stock market is projected to continue to rise in the second half of 2021 and beyond. A strong housing market, strong consumer spending, better-than-expected business earnings, a recovering job market, and extraordinary policy assistance from Washington and the Federal Reserve are propelling this expansion. Analysts say any bumps in the road aren’t surprising at this time because the market is reacting to conflicts between improved economic and corporate earnings growth and concerns about increased taxes and increasing interest rates. Positive but moderating returns and frequent pullbacks are also common in the second year of a bull market. According to Truist Wealth, the average return in the first year of a bull market is 43.3 percent, compared to 13.3 percent in the second year. In the near future, technicians will keep an eye on the NYSE advance-decline line, which measures the number of stocks increasing minus the number falling each day. It has recently indicated that fewer stocks are achieving new highs. There is, however, a silver lining: Coming into last week, fewer stocks had made new lows. And, according to Delwiche, this is a good indicator because problems arises when there are more new lows than new highs. “What we’re witnessing is a lack of strength rather than a prolonged appearance of weakness,” Delwiche says. “The number of equities reaching new lows isn’t increasing, indicating that the market may be resuming its upward trend.” So, what are your options? Do the polar opposite, as George Constanza once stated. According to Stovall, if equities are declining, you should increase your exposure to them. Long-term retirees, on the other hand, may be better served holding tight, according to history. Delwiche concurs. “There are times when you should aggressively buy stocks and periods when you should aggressively sell equities. There are other moments when you want to do nothing but go fishing “Delwiche agrees. “This is the third time,” says the narrator. Courtney Johns understands this and is acting on it. “I’m a Type A personality who is also neurotic. So, now that I’m in my thirties, I’m learning that I can’t control everything “she explains. “Self-care for me is not paying too much attention to what the stock market is doing. I’m already preoccupied with a slew of other issues.” This story can be read or shared in two ways: https://www.usa/n
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