“Should I stay or should I go?” the the Clash punk rockers famously sang in 1982. The same question could apply to individual investors in the stock market now.
The S&P 500 has dropped 18% this year. So should you stay in the market and perhaps buy more stock? or should you go, staying away from or selling stocks?
The bear case is that continued interest-rate increases by the Federal Reserve, raging inflation and a potential recession will depress earnings. And that will force the stock market down.
As of Friday, which marked the end of the earnings season’s first week, 35 of the S&P 500 companies had reported second-quarter earnings. Just 43% of them beat consensus forecasts for earnings per share and revenue, according to Bank of America.
Two-Year Low
That represents the lowest percentage since first-quarter 2020, when the pandemic began. And it compares with a historical post-week-one average of 47%.
Total second-quarter earnings will likely at best meet analyst projections, “with a flurry of downward revisions,” Bank of America strategists wrote in a commentary.
So it’s no wonder that some experts believe the market could fall another 10%, 20%, or even 30%.
But plenty of retail investors disagree. In March, they snapped up a net $28 billion of U.S.-listed stocks and exchange-traded funds, according to Vanda Research, as cited by The Wall Street Journal. That’s the biggest monthly total since Vanda began compiling the data in 2014.
During the April-to-June period, the monthly average dipped to $25 billion. But that still creamed the $3 billion monthly average for the prepandemic period of April to June 2019.
Personal Decisions
Buying stocks now certainly makes sense for long-term investors under the age of 40 who know they won’t need the money soon. That’s because if stocks’ history repeats, the market is unlikely to fall for more than a few years and highly unlikely to drop for more than 10 to 15 years.
But for investors over the age of 60, it’s a different story. They may need to sell some stock soon after they retire to finance their spending. And if the markets keeps falling, these investors may have to unload some shares at a loss.
A lot of the decision about whether to buy stocks now boils down to risk tolerance. If you want to buy stocks and can sleep at night with the additional risk you’re taking on, there’s no harm. But if you’re an older investor who’s already fully weighted with equities, you might want to think twice.
