Whatās Going On Here?An update from the Federal Reserve (the Fed) left investors feeling a bit stranded late on Wednesday, and they jumped ship from global stocks the very next day. What Does This Mean?The Fed said it was too early to leap to conclusions based on a few positive economic data points, and admitted it expects the US economy to shrink by 6.5% this year (so much for that āV-shapedā recovery). And while the central bank is expecting economic growth to rebound next year, the Fed doesnāt think itāll increase interest rates until at least 2022.
Thereās something else in the corner of investorsā eyes: coronavirus cases have started rising again in a few US states as stay-home orders begin to lift, which ā short of a decent track-and-trace system ā could trigger more infections, renewed lockdowns, and a delayed economic recovery. Why Should I Care?For markets: We like big ābutsā and we cannot lie.
The stock market isnāt the economy, we wrote on Wednesday. But if the economy doesnāt recover as quickly as predicted ā or grinds to a halt all over again ā itāll be the stock market that feels the pain (tweet this). Thatās because companies will likely earn less than expected in a downturn, and investors will adjust their company forecasts accordingly. And when they do, they might end up selling shares either in anticipation that a companyās earnings are going to fall, or ā if the news comes as a surprise ā after the fact.
For you personally: Law of averages.
With investors everywhere not sure if theyāre coming or going, ādollar-cost averagingā could be a good choice for Finimizers. By investing a set amount regularly, youāll end up paying the average price for stocks over a period of time rather than on any one day ā and get more bang for your buck when prices drop. And since stock prices tend to rise in the long run, odds are youāll end up bagging yourself a profit. | 