The stock market these days is insane–and taking investors on a financial roller coaster ride. It’s been down 900 points one day, up 250 another day, repeat, repeat, repeat! If you’ve logged into your 401k account or just received your investment statements, there’s a high likelihood that you’re a little worried about a pending recession. You’re working hard and saving for your future but what can you do to get through this period of intense market volatility?
Recently, I was asked to share my thoughts on the current market conditions on Good Day LA and Cheddar TV. Here’s what I’m advising:
First, know that the current period of stock market volatility is being driven largely by the escalating tariff wars between the U.S. and China.
A report prepared for National Retail Federation found the proposed new round of tariffs would cost Americans $4.4 billion each year for apparel, $3.7 billion for toys, $2.5 billion for footwear and $1.6 billion for household appliances. That translates to about $800 for the average American household, a report from Oxford Economics estimated.
For example, when tariffs were imposed on imported washing machines in 2018, U.S. manufacturers took advantage of the situation by raising their prices, forcing American consumers to pay from 125% to 225% more.
Expect higher prices on toys (more than 80% of those sold in the U.S. are imported from China) , cribs, toothbrushes, milk, cars, books, shoes, headphones, bed linens, backpacks, smartphones, laptops, you name it!
Be a smart consumer by:
- Figuring out how much you will need in staples (paper towels, diapers, frozen food, toilet paper) to get you through the rest of the year and stock up now before prices go up.
- Talking to your family about what tariffs are and how they affect your household budget.
- Making your Christmas lists now and get your shopping done early. Don’t wait too long to buy those toys such as Barbies, Legos or even a new pair of shoes.
- Taking the family on a vacation instead of buying a lot of gifts this holiday season. This is your opportunity to put the focus on experiences vs. material goods. If your budget is tight, go on a road trip or somewhere local; otherwise, look at vacation deals now.
- Not waiting to buy a big-ticket item. If you know you’re going to need a new car, computer or smartphone consider buying it now before the tariffs cause the prices to go up.
- Updating your resume and Linked In profile and collecting endorsements from those you work with. In times of recession, many companies are forced to make employee cuts. If your family heavily depends on your income, be prepared. Consider taking on freelancing work or side employment in the meantime to increase your cash flow and savings. Rent out an extra room in your house, sell things in your home that you no longer need, find creative ways to bring in some savings.
- Reducing your spending if you are a two-income household to see whether you can live on one income for a month or two.
- Going through your budget to see where you can save money. (We have free budget worksheets you can download at sungrouwp.com).
- Go through your wallet and start using or selling unneeded store gift cards that you’ve been holding onto. During financial challenges, you’ll see companies such as Forever 21 who just this week announced that they are considering filing bankruptcy. If a company goes belly-up, those store gift cards could also quickly become worthless.
Be a smart investor by:
- Taking some time to review your finances. Talk to a professional. This could be your financial advisor, your accountant, the 401k provider at your workplace, or someone else you can go to for some financial advice.
- Make sure your investments still align with your risk tolerance and investment timeline. For example, if you’re about to retire or send your child to college in the next 12 to 18 months, definitely reconsider your risk tolerance.
- Seek out a second opinion; many advisors will offer a complimentary initial consultation.
- Rebalance your portfolio of investments if you would like to reduce risk. If your time horizon is long, get knowledgeable about the stock market, market volatility, and consider working with a professional to help you stay informed and invested.
- Saving enough for your emergency fund. For most people, this is three to six months of expenses. If you have kids or other dependents, you may need more.
- Paying down your debts. This helps you free up your credit in case you need money for an emergency.
- Considering applying for an increase on your credit limits on your business loan or applying for a home equity loan on your home. Understand that this money is not to be tapped except as a last resort.
- Holding tight with your investments but staying informed. Investing is a long-term process that takes patience and a willingness not to let emotions dictate investment decisions.
- Keeping some money on the sidelines and not rushing to buy when the market is falling. Wait until there are signs of global market stability before putting more money to work.
It’s smart to pay attention to warnings that a recession might be on the way. Here are some things to heed:
- One of Wall Street’s favorite indicators of an impending recession — the spread between the three-month and 10-year Treasury yields — just flashed the highest alert for an economic downturn since 2007.
- Rates on 10-year notes sank to 1.71 while the three-month rank sank to 2.01 recently, marking the most severe yield-curve inversion since the start of the financial recession a decade ago.
- Yield curve inversions, which are rare, are viewed as a good recession predictor because it means that investors believe, with the interest rate on long-term bonds lower than the rate on short-term bonds, economic growth is slowing and the Federal Reserve will be forced to lower the benchmark federal funds rate.
- At its latest meeting in July, the U.S. Central Bank lowered borrowing costs by a modest 25 basis points — the first time it has done so since the 2008 recession.
- Inflamed relations between the U.S. and China, with the Treasury Department designating Beijing a currency manipulator, is another big red flag. China’s allowing its currency to fall triggered a sharp downturn in the U.S. stock market.