Stocks have had an absolutely disastrous year. With little under three months left in 2022, the S&P 500, a more significant market benchmark, is down more than 22%.
The prognosis for the economy and market is likewise cloudy. Investors are still trying to determine if a more severe recession will occur next year and how the Federal Reserve will proceed with interest rate rises.
Another significant uncertainty for stocks is how quantitative tightening, which occurs when the Fed decreases its balance sheet and sucks liquidity out of the economy, may influence equities in the future. Is it safe to invest in the stock market right now, given the level of uncertainty?
It’s OK to Feel Scared Right Now.
In today’s economy, it’s perfectly OK to be scared and recognize that we live in difficult times. The Fed has begun one of the most aggressive rate-hiking campaigns in decades, and several of those rises just started in June, so the full impact has yet to be realized.
That is why many investors are apprehensive about a possible significant recession shortly. Consumers and companies will eventually face increased debt costs on their mortgages, school loans (many of which have not been paid off in more than two years), and revolving lines of credit. Furthermore, inflation has lowered the personal savings rate in the United States, and individuals are beginning to feel the sting, which might deplete their savings and make servicing debt payments more difficult. Unemployment is also anticipated to rise in the short future, putting more burden on household budgets and the economy.
However, You May Also Be Opportunistic.
While you should be conscious of the economic uncertainty and risk elements, I don’t believe it should deter investors from investing right now, as long as they adopt a long-term strategy and conduct thorough due diligence.
After all, according to famed investor Warren Buffett, investors should be “scared when others are greedy, and greedy when others are fearful.” Buffett’s conglomerate, Berkshire Hathaway, has undoubtedly supported this concept by investing more than $57 billion in shares in the first six months of the year.
Over time, history shows that you are more likely to gain money on your stocks than lose it. Between 1928 and 2021, the S&P 500 had an annualized return of more than 11.8%.
What Stock Should I Purchase in This Market?
I prefer to look at stock valuations and am more likely to acquire companies with fair or even historically low valuations. This, in my opinion, makes it simpler to analyze a stock and may lead to more potential. A business with a higher valuation may have stronger growth potential in the future, but it also offers less room for mistakes, and investors don’t need a compelling cause to sell in the current market.
Fortunately, most values have declined by this stage, but I would not purchase any firm selling at 50 or 60 times sales, as many investors were ready to do last year.
Featured Image- Unsplash @ Austin Distel
Author Okoro Chinedu 
