By Quentin Fottrell
How low can stocks go? This question has made investors nervous, as they fear one bottom after another.
Wall Street is nervous at the prospect of stagflation — the double-edged sword of prolonged inflation and high unemployment — as the Federal Reserve attempts to combat inflation by raising interest rates without pushing the economy into recession.
“For those investors concerned it is too early to take the plunge in the U.S. market, maybe buying dips in Europe and EM is a safer call,” Citi analyst Robert Buckland, who leads a team of strategists, wrote in a research note.
Anh Tran, managing partner at Orange, Calif.-based SageMint Wealth, also has some advice for young investors who have time before they retire: “These are the times that we should take advantage of the market’s volatility and continue to invest.”
She was speaking at CNBC’s “Own Your Money Before it Owns You” event on Thursday.
Why? Generation Z and millennial investors have 25 to 30 years or so recover from another bottom.
“A dip is your best friend, so buy the dip, take advantage of the fact that prices are low right now and don’t try to time the market,” added Paula Pant, host of the podcast “ Afford Anything ,” who also appeared at the CNBC event .
Buying the dip or “BTD” is not always as simple or smart a move as it might appear, as Jon Burckett-St. Laurent, a senior portfolio manager at Exencial Wealth Advisors , wrote on MarketWatch in April.
With CPI hovering at 40-year highs — hitting 8.3% in April — he said central banks may not be so eager to intervene with aggressive rate cuts or keep extra money flowing with bond purchases via so-called “quantitative easing,” especially in the event that economic growth slows significantly.
“The next problem with BTD is that a realistic strategy requires more details than ‘buy when the price falls,’” he wrote . “Some questions to consider: What constitutes a dip? What money are we using to buy? When do we sell?”
Instead, Burckett-St. Laurent recommends what he calls a “tactical rebalance” to, for example, 80% stocks and 20% bonds and, once the market has recovered and fundamentals look more secure, move back to 60% stocks and 40% bonds.
He also suggests waiting for blood on the streets. “If stocks are down 50%, it may constitute a sentiment-driven overreaction,” he added. A decline of 3%, 5% or even10%, is not exactly a “generational buying opportunity,” he added.
Still, a recent survey by personal-finance site Bankrate shows 43% of investors ages 18 to 25 said they’re ready to increase their investments. More than a quarter, 27%, were millennials ages 26 to 41.
But only14% of investors ages 41 to 57, the so-called Gen X demographic. And just 8% of baby boomers, ages 58 to 76, said they were likely to invest more in the market this year. Some 22% said they’d be investing less.
Even those younger investors may be less confident now about buying the dip. The new survey was fielded a month ago — before Wednesday’s stock-market rout in the face of inflation jitters.
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.23% , the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.36% and Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.35% ended mixed on Friday , after briefly holding onto positive territory earlier in the day before entering bear-market territory later Friday.
The Dow and S&P 500 closed Thursday at their lowest since March 2021 . Dow Jones Industrial Average clocked an eighth straight weekly decline, marking its longest losing streak since April 1932, according to Dow Jones Market Data.