Stock market traders fear recession in the USA
A global stock market collapse sparked investor fears of a recession in the US. However, experts say the threshold of the “Sahm rule” has not yet been reached.
Retirement accounts suffered a severe blow on Monday amid a global sell-off in markets.
The S&P 500 closed down 3%, while the tech-heavy Nasdaq Composite fell 3.4% and the Dow Jones Industrial Average fell 2.6%. It was the biggest one-day loss for the S&P and Dow since September 2022.
While some investors worry about the state of their 401(k) plans, experts say there’s a simple way to navigate the downturn: ignore the sell-off and keep investing.
“Hang in there,” said Kristina Hooper, chief global markets strategist at investment firm Invesco. “Most investors have a long-term horizon. It’s not measured in months. And while it’s hard to put blinders on, that may be the best decision investors can make for their portfolio.”
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Why is the stock market in the red?
Monday’s sell-off came on the heels of the disappointing July employment report released on Friday, which fueled recession fears.
Hiring in the U.S. slowed as employers added 114,000 jobs – a sharp decline from the 175,000 jobs economists estimated were created last month. Meanwhile, the unemployment rate was 4.3%, the highest since October 2021 and up from 4.1% in June.
The jobs report triggered the so-called Sahm rule, which states that the country is probably in a recession if unemployment increases by at least half a percentage point on average over the past three months.
Claudia Sahm, the former Federal Reserve economist behind the eponymous rule, told Bloomberg Television that it is unlikely the country is in a recession, but “we are approaching that situation at a disturbing rate.” Scott Wren, chief global market strategist at Wells Fargo, told USA TODAY that while recent economic indicators raise the risk of a recession, the likelihood of us entering one within the next 12 months remains low.
Stock market updates: How US markets are feeling the effects of the global market collapse
How far has the S&P 500 fallen?
The S&P 500 closed at a record high of 5,667.20 on July 16. Since then, the index has fallen more than 8%.
How far has the Dow fallen?
The Dow has fallen more than 6 percent since its record close of 41,198.08 on July 17.
What does this mean for me and my 401(k)?
While it may be tempting to stop investing or withdraw money when prices fall, experts say it’s best not to check your 401(k) account and keep investing.
“You definitely don’t want to stop adding money,” says Sam Stovall, chief investment strategist at investment research and analytics firm CFRA Research.
If investors don’t mind taking action during the crisis, it might be better to increase their investments while prices are low, according to Scott Wren, chief global market strategist at Wells Fargo.
“It’s an opportunity,” he said. “If anything, you should increase the amount you put in when the market is weak, because over time — two, three, five or more years — it’s very likely to work out.”
Ryan Detrick, chief market strategist at financial services provider Carson Group, said such phases are “never comfortable” for investors, “but they are part of the process.” A market decline of at least 10 percent from a recent high – also known as a correction – occurs about once a year.
“Long-term investors can achieve their goals during times like these,” Detrick said. “Shopping on deals is always a good strategy, even if it feels wrong at the moment.”
