On investments amid coronavirus, this, too, shall pass
If the booming stock market during the past couple of years has prompted you to consider whether your 401K will permit early retirement, forget it. Stocks, and thus pension funds on which many Americans rely, have taken a beating during the past month.
How bad is it? During the month that ended Monday, the Dow Jones Industrial Average on the New York Stock Exchange dropped by more than 5,400 points — nearly one-fifth of its value. Then a sell-off Thursday on Wall Street helped to wipe out most of the big U.S. gains since President Donald Trump took office in 2017.
Around the world, stock exchanges have taken the worst beating since 2008.
Blame panic over COVID-19, in part. Worried investors have taken huge losses in their drive to unload stocks in favor of what they view as more secure. Gold prices have gone up more than 6 percent during the past month (strangely enough, silver prices have decreased).
Friday began on a brighter note, with global financial markets surging and clawing back a small slice of their losses, following the news that the Trump administration and House Democratic leadership were nearing an agreement on a coronavirus aid package aimed at reassuring anxious Americans by providing sick pay, free testing and other resources.
But another factor in the past few weeks has affected the markets: Oil prices have plummeted. Analysts say a price war between Saudi Arabia and Russia is to blame. Both major petroleum producers have slashed prices, by about 25 percent, in attempts to gain market share in the mindset of a global glut in supply. Shale drilling may be linked to some of that.
What can be done about the situation? Not much. The Federal Reserve already has reduced its short-term interest rate to 1 percent, down from 1.25 percent. Some have suggested the Fed should cut rates even more.
Little can be done about energy prices. Slumps in both oil and natural gas were predictable and quite likely unavoidable. That is good for motorists at the pump and homeowners who heat with gas — but bad for those who have invested in energy stocks.
As for panic over COVID-19, there is something that can be done: Calm down, people.
Analysts have pointed out that the U.S. economy remains strong. The “fundamentals” are solid. Dumping stocks out of fear is irrational — and a gift to shrewd investors with enough money to pick up good stocks and, during coming years, watch them increase in value significantly.
So, if you have any say over your investments — and you may have some, even if a professional manager handles your retirement money — don’t go off the deep end. This, too, shall pass.