At the very beginning of the year, an analyst already mentioned the reasons of the bear market that we are still living.
It is not only the crash in China and the aftermaths (slow economic development, cut in commodities demand), but there are many factors to explain. Just to quote them:
- Oil price: far from be good news, the hard drop of the oil price could really show a weak demand, not a high supply. That means that the economic development could be worse. In addition, oil companies are highly indebted. With a low price, they will suffer to pay back.
- Rising rates in US: The increase in the rates decided by the Fed last year will not be the last one in the next months. The economic development in US has some warnings this year and the central bankers prefer to watch instead of send a negative signal. Let’s see…
- Deutsche Bank: recently added. One of the main European and world banks reported high losses, but the worst was the suspects about its solvency. Such crisis would put the euro in a hard position to continue existing.
We could mention some others, but many people ask: are we living a recession again? Some analysts are very pessimistic, others stay in a middle position. In any case, the market evolution, which is driven by irrationality sometimes, is not a good economic crisis predictor.
The question is other. In former crisis, there have always been alternatives to move the money and obtain returns. What is currently the alternative? Stocks are dropping, investors are paying interests for the safest bonds, commodities are in the lowest points for years and traditional banking products offer very poor returns. The best to do:
- Don’t panic: ups and downs are usual in markets. Even drops are common. If you have a strategy defined by your risk profile, keep it.
- Don’t be obsessed by news: media are continuously bombing with negative news to get attention. Switch them off!
- Don’t sell massively: the big mistake an investor can do is selling in a market sell-off.
- Keep a long-term perspective: common investors are not traders. They invest to make future plans. If you do not need the money now, keep calm. Let’s wait till the landscape is clearer.