Market Meltdown Sets Investors on Edge: Community Conversations

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Sell ​​in May and go away?

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If only. Selling started fast and furious in January and hasn’t let up.

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Photo Illustration by Staff; Dreamstime

Down 18% year-to-date, the Standard & Poor’s 500 Index is a Grizzly bear paw swipe from entering bear market territory.

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The tech-laden Nasdaq has already been sliced ​​and diced, down 28%, as investors deliver swift and severe blows to growth stocks, particularly those with the priciest valuations, while the Federal Reserve raises interest rates to combat inflation.

While young investors should consider current market weakness a buying opportunity, older investors lack the luxury of time to see anything good in a phalanx of red down arrows flashing in their portfolios. Math explains why. To compensate for a 50% loss, an investment needs to rise 100%. With that uplifting fact in mind, let’s see what’s capturing the imagination of the Barron’s Advisor community.

Retireees find few places to hide as markets tumble. The S&P 500 is off to its second worst start in history based on the first 90 trading days of the year. Adding insult, traditional safe havens have bucked tradition. “This is probably one of the few times, if ever, in someone’s investing life that either gold or fixed income isn’t a safety net,” says Dan Ludwin, president and founding partner at Salomon & Ludwin. We asked practitioners what they recommend clients should do, And readers weighed in.

Raymond Drogan favors a lower-risk, pragmatic approach, recommending that investors “buy quality names.” Mike Baughan recommends that investors “go with Series I Savings bonds.” His comment scored 12 thumbs up votes and 3 down. The inflation-indexed bonds currently pay an annualized rate of 9.62% interest through October.

‘Disruptor’ stocks torpedoed while old-school names hold up. It turns out that many companies previously hailed as disruptive were simply beneficiaries of Covid lockdowns. Today, these former highfliers resemble battered pinatas. Robinhood Markets (HOOD) and Peloton Interactive (PTON) are each 90% below their 52-week highs while Teladoc Health (TDOC) is down 83%. While rising interest rates, high inflation, and the disappearance of FOMO has contributed to brutal selling, shares of more traditional, disrupted “old-school” companies are faring much better, Here is a sampling of what readers had to say.

Ray Noack wrote on May 7, “the damage is stunning as 22% of all stocks listed on Nasdaq are down more than 75%.” Bharat Bhatia asserts, “This whole bubble in many stocks was all driven by Fed liquidity—and you can chart the correlation 100% to the stock prices since the Fed unleashed the biggest money printing event in the history of mankind.” Bhatia continues, “What did they think was going to happen? Fed was stupid to let it continue for so long and everyone got drunk at the party. Finally in Dec. the Fed took the punch bowl away and that was the time to sell.”

But some thematic investments look attractively priced. While the recent carnage among former high-fliers has battered the prices of many thematic ETFs, investors should remember that these funds were built to prosper over many years. They’re not meant to be flipped by day traders. As such, current weakness could provide an appealing entry point for investors that want more exposure to long-term economic trends, can stomach short-term risk, and have the luxury of time. Commenters liked the article but expressed concerns about these funds.

Damiano Varvaro wrote, “Good read. If theme investing can lead to a 40%-50% drop, why bother with ETFs and pay a fee? You can purchase as few as ten or twenty stocks in that sector and create your own ETF. Better yet, how about ten or twenty best performers from the S&P 500 and be well diversified?” Barry Singer cautioned that “the democratization of theme investing may lead to the next big debacle for unsophisticated investors. It seems that almost anyone can create an ETF stock basket with a catchy marketing name.” He adds, “This ‘over-basketing’ of the same companies in many ETFs may well lead to huge losses in those individual stocks when these baskets are unwound in a severe market decline. It may be happening now in the Covid ‘stay at home stocks.’ Buyer Beware.”

What advisors need to know about student debt forgiveness. The upshot is that relief in some form is in the works. However, with so many moving parts to the federal student loan system, financial advisors may struggle to keep up with the latest developments, This article, which aims to help advisors prepare their clients for multiple scenarios, drew some skeptical comments.

John Kling wrote “The Constitution established Congress as the key player in making laws. While divided opinions in the public and Congress make legislation difficult, the answer is not to grant or allow expansion of unilateral executive powers.” Robert Fleming wrote “Perhaps the graduates can use their new skills to negotiate with the schools or argue their case in small claims court. Anyone making 125k per year is able to pay off their student debt.” Bill W. asked “If your loan isn’t worth paying off to you, why is it worth it to me?”

Please check out previous Community Conversations and let us know what you think!

Write to Greg Bartalos at [email protected]

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