It's been a rocky week for the stock market, with both the Dow Jones Industrial Average and S&P 500 taking notable plunges. And many investors are quick to blame that volatility on an increasing number of COVID-19 cases. Not only is COVID-19 putting millions of people at risk for serious health consequences, but it's also started to result in supply-chain issues that are bound to have a global economic impact.
But that's not necessarily the only reason the stock market has been swinging. Here are a few other reasons why we may be seeing a lot of downward movement.
Though we're nowhere close to November, the madness of election season is already upon us. And uncertainty regarding our upcoming election could already be moving the market in a downward direction.
It's been really expensive to buy stocks this year, and many well-respected investors (including Warren Buffett) agree that stocks are largely overvalued at this point. Or to put it another way, the prices stocks are selling for today largely exceed what their value should be based on common metrics like P/E ratios or earnings projections.
Recessions are a natural part of our economic cycle, and let's face it -- we're due for one. It's been more than 10 years since the Great Recession wrapped up in 2009, and based on somewhat recent history, it's fairly unusual to go that long without a downturn.
Though it's been an unquestionably tough week for stock investors, one thing you need to realize is that the only way you'll lose money in a sell-off is by unloading stocks you own at a loss. A better bet? Leave your portfolio untouched.
Ideally, your stock portfolio shouldn't be your go-to source for money when the need arises. Rather, you should have cash available in the form ofemergency savings to tap into when near-term bills arise. As long as that's the case, you should be in a solid position to leave your investments alone and ride out the wave of turbulence we're experiencing right now.
That said, there is one potential course of action you can take if this latest bout of volatility continues: Prepare to add a few stocks to your portfolio. Stocks have been priced so ridiculously high in the past number of months that now might be a great time to snag a few at a relative discount (operative word being "relative," but there's still opportunity). As such, it pays to cut back on spending in the next few weeks or put in some time working your side hustle to free up cash to invest. Don't raid your emergency fund, though -- the potential upside isn't worth that risk.
The spread of COVID-19 is projected to get a lot worse before it gets better, but that's not the only factor moving the market today. Stay current on fluctuations in stock prices -- not so you can react by selling, but so you can capitalize on potential discounts in the coming weeks.