Dow drops nearly 1,000 points, the worst daily performance since October 2020
The stock market closed a tumultuous week on a bleak note Friday, with the three major U.S. indexes plummeting as investors were caught up in concerns about inflation, the Federal Reserve's fight against it, and fears of a hard landing recession.
As investor confidence plummeted, financial experts advised investors not to panic and instead focus on long-term solutions.
The Dow Jones Industrial Average DJIA, -2.82 percent completed the day at 33,811.40, down 981 points, or 2.8 percent. According to Dow Jones Market statistics, Friday's performance was the index's worst daily percentage decline since Oct. 28, 2020.
Meanwhile, the Nasdaq Composite index COMP, -2.55% shrank 2.6% and the S&P 500 SPX, -2.77% lost 2.8%.
TGIF, indeed.
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Of fact, some jittery individual investors may have previously predicted this outcome.
According to the latest weekly attitude survey from the American Association of Individual Investors, about 44% of consumers believe the market is trending in a bearish manner. In the continuing tracking, that's over 14 percentage points more than the 30.5 percent historical average on pessimistic sentiment.
In the week ending April 20, however, roughly 19 percent of those stated they were bullish. This compares to a reading of 15.8 percent a week ago. However, it hasn't been since May 2016 that optimistic sentiment in the continuing tracker hasn't exceeded 20% for two weeks in a row.
According to a Nationwide study conducted earlier this week, six out of ten investors expect increased market volatility, and seven out of ten are concerned about a recession.
In the same study, nearly four out of ten investors (44%) said they were more confident in their capacity to protect their money in the event of a future downturn, while 38% said they were more confident in their ability to participate in the stock market.
It's not as though retail investors have a monopoly on the market's sideways perspective. According to Bank of America, investors pulled $17.5 billion out of global equities in the last week. According to them, the outflow is the largest weekly shift for the exits this year.
Regular investors who are fresher to the markets — and may have begun during the epidemic — may not have the same resources or risk tolerance as more knowledgeable investors, or institutional investors, to keep their stomachs steady during shaky moments.
Experts say now is the time to take a deep breath and avoid making any dramatic decisions, especially with the recession still looming.
First and foremost, there's the short-term narrative.
"While continued inflation and a more active Fed are risks to the economy and financial markets, we do not expect a recession in the next 12 months," wrote Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management.
Even with the succession of rate hikes that investors are anticipating, the economy can improve, and first-quarter earnings data have been "generally strong," Marcelli wrote in a note.
There are exceptions, such as Netflix NFLX, -1.24 percent, which reported a 200,000 net loss of subscribers this week when analysts expected a 2.5 million increase.
There's also the long-term narrative to keep in mind. During downturns and periods of turbulence, Scott Bishop, executive director of wealth solutions at Avidian Wealth Solutions in Houston, Texas, advises investors to think broad and long term.
The polls and sentiment trackers show a pessimistic retail investor mood, which is consistent with what he's hearing from his clients right now.
"It's time to make modifications to your portfolio," Bishop says if people believe it's time to adjust strategy or cut losses. It's not a good idea to make drastic adjustments." That could imply reconsidering allocations and taking losses for tax loss harvesting, for example. "You will always lose if you invest your portfolio solely on news," he stated.
Although it appears that the pandemic has lasted much longer, the COVID-19 market low was only two years ago. Then there's the second half of the narrative, which concerns those who choose to stay in the market rather than pay out.
It's definitely important considering the next chapter in that story at a time like today, Bishop added. Finally, individuals who "take extreme action, binary action, I'm in or out" are the ones who suffer the most financial hardship.
