Many investors likely reached out to their financial advisor over the past 48 hours due to a wild start to the week on Wall Street. The largest point decline on a single trading day in history took place on Monday, then Tuesday opened with another 500-plus point drop. The Dow recovered at the end of Tuesday finishing at 24,912, but many money experts in Mid-Michigan say despite the roller coaster, nobody should panic.
Financial advisor Doug Adler says with the Dow dropping below 25,000 it means all the gains for 2018 have been wiped away, but this volatility was expected.
“What we’re seeing right now, while it’s uncomfortable of course and the velocity to the downside is disconcerting, the reality is when you look at the data historically this is really normal.”
The most immediate reason for this stock market uncertainty is a fear of inflation. With unemployment historically low and our economy strong, many experts believe it raises concerns that inflation will pick up, causing the federal reserve to raise interest rates to fight it. That being the case, it’s the strength of our economy, according to Adler, why selling stocks right now may not be the smart thing to do.
“When you go into a situation like this to sell, you may be right, stocks can certainly go lower, but if we look at history as a guide, selling when things are weak is usually not the best decision over the short term.”
For some, a major sell off like we’ve seen promotes others to do what is called, buying the dip, because some investors may see a chance to invest in certain stocks now that prices have dropped.
“The flip side of selling is that it does create opportunity.”
It’s important to note that sharp stock market declines don’t cause recessions. While the market plunge might be uneasy to watch, it’s not necessarily a sign that the economy is in trouble.