AUSTIN, Texas — This was a scary Monday for anyone invested in the stock market. The Dow Jones Industrial Average dropped 1,000 points, and the S&P 500 just finished its worst day in nearly two years.
Japanese stocks suffered even more, seeing their worst drop since the Black Monday crash of 1987. The expert advice for armchair investors is “don’t panic” and “ride it out.”
“There is no need to panic. The economy is not in a recession,” said Ann Mulholland, an expert on consumer finance. “It’s like yelling fire in the middle of an arena and there is no fire. We need to really stay calm during this period of time.”
U.S. stocks continued tumbling on Monday with investors rattled by reports of a slowing American economy. The trigger for this latest sell-off was the disappointing July jobs report and sharp declines in high-flying tech stocks such as Apple, Amazon, and Intel. Even though it’s hard to stay calm as the stock market reels, Dr. Craig Pirrong at the University of Houston says consumers with 401(k) plans should try.
“They’re long-term investors and they really can’t and shouldn’t react to short-term fluctuations in the market,” said Dr. Pirrong.
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Experts say now is the time for consumers to remember how much they like a sale. Stock prices are dropping so keep in mind the best overall strategy is to buy low and sell high. An exception, according to Mulholland, is once-hot artificial intelligence tech stocks. They were among the worst performers on Monday.
“These are riskier. They are very overvalued, arguably, overvalued stocks. So, there might be some consideration of moving into something a little bit more stable at this period of time,” said Mulholland.
The stock market plunge has demand for U.S. treasuries up and mortgage rates down. While a recession is still far from a certainty, the odds are going up. Goldman Sachs raised the probability of a recession in the next 12 months from 15% to 25%.
“The odds if not of a recession, then a substantial slowdown in growth are pretty good,” said Dr. Pirrong.
Financial experts say bonds and certificates of deposit are now looking more attractive. They also advise that anyone on the fence about buying a house should take another look at dropping mortgage rates. The average rate for a 30-year fixed-rate mortgage is now at 6.95%.
