DALLAS (Special) – The wild ride on Wall Street so far this week has seen stocks tumble more than 1100 points Monday before recovering to a gain of a little over 100 points, and Tuesday’s opening bell greeted with another steep drop.
Compounding investors’ pessimism, stocks had already finished last week as the worst week since April 2020. The tech-heavy NASDAQ index lost 7.6% last week, and the broader S&P 500® index ended down 5.7% for the week.
“The market expects the Federal Reserve to begin raising interest rates in the next few months,” said GuideStone’s chief investment officer David Spika explained. “Higher interest rates generally lead to less money in the overall economy, which the market is reacting to.”
Given the Federal Reserve’s likely next steps, the markets’ reaction was not unexpected.
“This is a needed reduction in valuation,” Spika said. “Stock values have been propped up by Fed policy since the middle of 2020. That was not sustainable.”
Markets are cyclical, Spika pointed out in noting that the S&P 500 was up 27% in 2021, 16% in 2020, and 29% in 2019. Since 1962, mid-term election years like 2022 tend to be especially volatile with the S&P 500 falling 19% on average at some point during the year.
However, the S&P 500 has never produced a negative return in the 12 months following a mid-term election, so Spika cautions against overreaction. “There is no recession on the horizon, so no bear market is expected,” he said.
“Making moves during down markets can be risky as it can lead to ‘locking in losses,’ GuideStone President O.S. Hawkins said. “It often leads to buying high and selling low when one tries to capitalize on short-term gains rather than following a more disciplined, long-term approach to investing.”
Investing involves risk, including the potential loss of principal. GuideStone Funds may experience negative performance, like any investment opportunity, and past performance does not guarantee future results. There can be no guarantee that any strategy, risk management or otherwise, will be successful.
“No one can predict what the market will do tomorrow, so focusing on your long-term goals is the key to riding out periods of market volatility,” Hawkins said. “You can’t sell yesterday’s loss or buy yesterday’s gain. Stay focused on long-term objectives and keep your eye on your goals.”
Retirement plan investors who want to make sure their fund allocations are age-appropriate can use the MyDestination Funds®, which provide a diversified asset allocation that gradually becomes more conservative as participants approach and move through retirement.
Investors also can choose to work with a personal advisor through fee-based GuideStone Personal Advisory Services®, to develop a portfolio aligned with the investor’s risk tolerance. For more information, visit https://www.guidestone.org/GPAS.
For free resources, including the Retirement Planner Calculator and the Retirement Income Estimate tool, visit https://www.guidestone.org/InvestmentAdvice.
