Economic Indicators & Central Banks:
- German GfK consumer confidence unexpectedly declined. It has hit the lowest level since March 2023, despite the fact that inflation has slowed and the labor market is still looking robust – shows that business and income expectations deteriorated sharply.
- UK GfK consumer confidence improved more than expected. Falling mortgage rates and the decline in inflation clearly has helped to stabilize sentiment. Retail sales data for December as well as the CBI retailing survey for January were pretty dismal and while there is only a spurious relation to overall consumption, the data continue to flag downside risks to domestic demand.
- US: Fed funds futures are firmer as the markets see the economy’s “immaculate deflation” intact. Implied Fed funds are reflecting slightly less than a 50-50 bet for a -25 bp cut in March, with June reflecting about -60 bps in easing, while the December contract points to -140 bps by year-end.
- Yellen says strong US GDP does not raise ‘inflationary concerns’.
- ECB: Policy was held unchanged. While Lagarde didn’t really give much away, a refusal to commit to keeping rates on hold through the first half of the year, or rule out a cut in April, was enough to fuel speculation of an early move from the central bank
- European futures are slightly higher, although the GER40 (DAX) is underperforming, as markets continue to read dovish signals into Lagarde’s comments from yesterday.
- Asian stock markets corrected, led by a -1.5% drop in the Hang Seng after tech stocks came under pressure in US pre-market trading. Hang Seng and CSI 300 are still heading for solid weekly gains, however, amid signs that officials really are stepping up support measures for capital markets and the wider economy.
- JPN225 (Nikkei) lost 1% to 35,874.82 post a deceleration in Japanese inflation supporting a -2.1 bp drop in the 10-year JGB rate.
Financial Markets Performance:
- The USDIndex breached 103.50, while EUR has been under pressure. EURUSD dipped to 1.0812 post ECB day.
- USOIL broke $76 level and 2-month high, heading for the biggest weekly gain since October on sustained geopolitical tensions, lower US crude stockpiles, and prospects for additional government stimulus in key crude importer China.
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Andria Pichidi
Market Analyst
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The stock market has been on a rollercoaster ride lately, with ups and downs sending investors on a wild emotional journey. But the latest news has sent shockwaves through the market, with the plunging stock prices pushing the market into correction mode. This sudden shift has left many people scrambling to understand what is going on and how it will affect their investments. In this article, we will break down the meaning of stock market correction, what causes it, and what steps you can take to prepare for the upcoming weekend.
Understanding Stock Market Correction
A stock market correction is a decline of 10% or more from its recent peak. This is usually a short-term drop in the market and is considered a healthy part of the market cycle. While it may seem alarming, corrections are a natural part of the stock market’s ebb and flow.
One of the main causes of a stock market correction is investor sentiment. When investors become overly optimistic and buy stocks at inflated prices, a correction is likely to occur as the market corrects itself to more reasonable levels. Other factors that can contribute to corrections include economic indicators, interest rates, and geopolitical events.
The current stock market correction is a result of a combination of factors, including concerns about inflation, fears of rising interest rates, and the ongoing trade tensions between the US and China. These factors have all come together to create a perfect storm, causing a sharp downward trend in the market.
How to Prepare for the Weekend
Now that we understand what a stock market correction is and its potential causes, let’s take a look at what you can do to prepare for the upcoming weekend.
1. Stay on Top of Market News
In times of market volatility, it’s crucial to stay informed about what is happening in the market. Keeping up with the latest news and analysis can help you understand the causes of the correction and make informed decisions about your investments. You can also use this information to identify potential buying opportunities that may arise during the correction.
2. Revisit Your Investment Strategy
Before the weekend arrives, it’s a good idea to take a step back and reassess your investment strategy. A correction can be an excellent time to review your portfolio and make any necessary adjustments. Consider the impact of the market correction on your current investments and whether any changes need to be made to your long-term strategy.
3. Diversify Your Portfolio
One essential strategy for weathering market corrections is a well-diversified portfolio. This means having a mix of stocks, bonds, and other assets to help minimize risk. So if one asset class is experiencing a decline, your other investments can help offset those losses.
4. Don’t Panic Sell
It can be tempting to sell your stocks when the market is plunging. However, panic selling can lead to significant losses and may result in missing out on potential gains when the market rebounds. Instead, consider staying invested for the long term and resist the urge to make impulsive decisions based on short-term market trends.
5. Consider Buying Opportunities
As the famous saying goes, “Buy low, sell high.” A market correction can present excellent buying opportunities for investors with a long-term outlook. Look for high-quality stocks that have been oversold and may be trading at a discount. However, be mindful of any potential risks and do your due diligence before making any investment decisions.
The Benefits of Market Corrections
While market corrections can be unsettling, they do have some notable benefits. For one, they help to keep the market in check and prevent it from becoming overheated. They also create buying opportunities for savvy investors and can provide a reality check for those who may have been overly optimistic.
Similarly, volatility in the market can also present opportunities for traders who can profit off the short-term swings. However, this approach is not suitable for long-term investors, as it involves higher risk and requires more time and energy to monitor the market closely.
Practical Tips to Survive a Market Correction
Here are some practical tips to help you survive and even thrive during a market correction:
– Don’t focus on short-term movements: Instead, keep your eyes on the long-term performance of your investments.
– Stick to your investment plan: A well-thought-out investment plan will help you stay on track during market volatility.
– Avoid making impulsive decisions: Emotional investing is never a good idea. Stick to your investment strategy and avoid making impulsive decisions.
– Invest in dividend-paying stocks: Dividend-paying stocks can provide a steady stream of income during market downturns.
– Take advantage of tax-efficient accounts: Consider investing in tax-advantaged accounts, such as 401ks and IRAs, to minimize the impact of market downturns on your investments.
Case Study: The 2008 Financial Crisis
One of the most recent and significant market corrections was the financial crisis of 2008. During that time, the market experienced a significant correction, with the S&P 500 dropping by more than 50%.
While the market correction undoubtedly caused a lot of anxiety and loss for investors, those who stayed the course and adhered to their long-term investment strategy ultimately saw their investments recover and even grow. This serves as a reminder to stay focused on long-term goals and not let short-term market movements derail your investment strategy.
In Conclusion
Market corrections are an inevitable part of the stock market cycle. While they can be unsettling, they serve an essential purpose in keeping the market in check and creating opportunities for investors. Staying informed, reassessing your investment strategy, and not giving in to emotional investing are all crucial factors in getting ready for the weekend and surviving a market correction. Remember to stay focused on the long-term and trust in your investment plan, and you’ll be able to weather the storm of market corrections with confidence.