Investors Are Scared! Is It Time To Be Greedy?

The stock markets has been in free fall since the new year and that might be a good thing.

The last time increasing interest rates made investors this nervous was in 2018 when the Federal Reserve hiked interest rates four times between March and December while reducing bonds on its balance sheet.

Sound familiar? The Fed's using the same playbook this year, but more aggressively. 

The Fed has already increased interest rates by 0.75% basis point, and earlier this month, it said it would begin reducing the number of mortgage securities and Treasury bonds beginning in June.

The drop in the indexes only hints at the fear in the market this year. The Dow Jones is down nearly 15% in 2022, while the Nasdaq has dropped 29% and the S&P 500 has fallen close to 20% so far this year.

The level of pessimism is getting so high that you might be nervously wondering what to do. If the past is an indicator, then 2018 suggests shopping for bargains.

 

Big Winners Emerge From Wreckage

It's hard to buy stocks when everybody else is selling them, but doing exactly that has paid off time and time again, including in 2018.

Stepping into the burning fire back then was likely that last thing investors' wanted to do after seeing their account balances decline by that much in just three months.

Yet, buying stocks during that painful sell-off turned out to be profit-friendly pretty quickly. For example, the NASDAQ 100 was trading at $173 at its highest point in December. If you were unlucky enough to buy at that price, you still broke even by the end of February 2019 and were up 10% by April, and you'd still be up over 68% today despite this year's drop.

Buying into the market wreckage takes nerves of steel and a willingness to be wrong short-term in exchange for a long-term reward.

 

How Do You Play the Market Now

There's no telling what stocks will be the biggest winners coming out of 2022's bear market, but time and time again, it's paid off to be optimistic about America's future.

Since the lows in 2009, the S&P 500 is up 489% and the NASDAQ composite is up 799%. If you'd told investors to expect those returns in March 2009, they'd likely laughed at you. Perhaps, the same is true now.

 

Happy Investing,

- James