.shock / Deposit Photos As worries grew about the Federal Reserve and other central banks being willing to bring on a recession to control inflation , stock prices plunged on December 16, 2022 .
This is the second straight week that the Standard & Poor’s 500 has lost 1.4%. It fell by 407 points, or 1.2%, on the Dow Jones industrial average to 32,796 points and by 1% on the Nasdaq composite.
Investors’ hopes for interest rate cuts next year were dashed as well when the Fed raised its forecast for how high interest rates will ultimately go.
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Inflation, while down from its highest levels in decades, remains painfully high. As a result, the Fed has kept raising interest rates to slow economic growth to maintain its aggressive attack on prices. The danger, however, is that too much braking could send an already sluggish economy into recession.
The risk was highlighted by S&P Global. According to the report, inflation slowed business activity this month. Even with the sharp drop, inflation pressures have eased.
But, if history is any indication , the future isn’t looking too bright.
According to Fed forecasts, inflation will slow next year due to rising unemployment. Despite this, the Fed’s own projections show prices still rising at an unacceptable rate by year-end 2023, with inflation at 3.5%.
Why’s that concerning?
Inflation has been running at 3.7% or higher during every recession since 1960 except the pandemic-induced downturn of 2020. It was only in 1974 that inflation was higher than 2.7% when the recession ended.
While we don’t have a crystal ball to predict the future, it wouldn’t hurt to prepare for a possible downturn. And, one area to focus on is avoiding the following investing mistakes during a recession. Immediately selling your holdings when they begin to fall.
When the economy is in recession, the stock market becomes highly volatile. As a result, you might be tempted to cut your losses when you see all your investments tank on the trading screen. However, when investments fail, you should not unload them.
Why? Well, here are three reasons why you should hold onto your investments. If you sell during a downturn, you could lose money. As a result of a market downturn, stock prices decline. The prices of investments were likely higher when the market was booming, so you likely paid more for them. In other words, if you sell during a downturn, you might end up losing money on your investments.Remember that you will never lose money unless you sell, no matter what the market does. The only way to lock in your losses is to sell when prices are lower, even if your investments decrease in value. In short, a good way to avoid losing money is to hold onto your stocks until the price recovers. There is no way to predict the market. If you want to maximize your returns, you should buy stocks at their lowest prices when the market bottoms out, and sell when the market peaks. The strategy is called timing the market, and while it sounds smart, executing it successfully is extremely challenging.There is no way that anyone can accurately predict what will happen in the stock market, not even the best investors. Even a small error in timing can result in a lot of losses in the stock market.As an example, consider the 2020 market crash during the early stages of the COVID-19 pandemic. In just a few weeks, the S&P 500 lost more than one-third of its value. By selling your investments […]
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