The combination of rising interest rates, inflation, concerns of a recession, and the war in Ukraine have sent the global markets reeling, with both stocks and bonds crashing. Typically, when stocks are down, investors flock to the safety of bonds. And when the markets are bullish, investors eschew the safe but small yields provided by bonds for outsized gains provided by stocks.
Just how bad is it getting on Wall Street? The January to April period was the worst four-month start for U.S. stocks since 1939. During that period, the S&P 500 fell more than 13% while the NASDAQ dropped more than 20%.
That free fall has continued into May. As of this writing, the S&P 500 is in correction territory (a drop of more than 10% but less than 20% from recent highs), down 15.5% over its January peak. The NASDAQ is in bear market territory, which is defined as a drop of more than 20% from its recent peak. It’s 24.5% in the red.
Meanwhile, the Bloomberg U.S. Aggregate bond index, is down nearly 10% in 2022. Having both stocks and bonds in the negative is rare. The last time this happened was in 1994.
With both asset classes falling, investors are trying to determine if the markets have bottomed or not. A number of technical indicators suggest the carnage is not yet over. The Cboe Volatility Index, often call the “fear index” is sitting near 29; the long-term median is approximately 18. Since 1990, the markets have bottomed when it’s index hits an average of 37.
Two additional indicators, the head and shoulders pattern and Fibonacci retracement—a method a method of technical analysis for determining support and resistance levels—suggest the S&P 500 could possibly fall a further 5.5% to 3,800.
Some technical indicators may be flashing warning signs but that doesn’t mean investors should sit on the sidelines. It means they need to be more discerning about how and where they invest.
Why Consider Investing in ETFs?
The closer the stock markets get to a bottom, the closer investors are to a historic buying opportunity. One of the best ways to take advantage of the stock market in either scenario is through Exchange-Traded Funds (ETFs).
ETFs are the perfect vehicle for investors looking to diversify their portfolio. ETFs hold a basket of underlying securities that generally track a specific index, stocks, bonds, or other assets. This diversity provides investors with the ability to access investments in virtually every class, sector, industry, theme, region, or investment style. They are similar to mutual funds but have some key differences. ETFs can be traded like stocks throughout the day, while mutual funds only can be purchased at the end of each trading day based on the net asset value (a calculated price).
For example, high share prices could deter investors from adding Facebook, Amazon, Netflix, Google, or Apple to their portfolio. Instead of researching and picking just one technology stock, an investor can gain exposure to all of these tech giants in one ETF.
Through specialty ETFs, investors can also target exciting, disruptive trends that are transforming our world, these can include the metaverse, cybersecurity, cloud computing, e-gaming, cryptocurrency, and electric & autonomous driving vehicles.
If you’re interested in investing in ETFs, look for an experienced provider with a strong track record of innovation and growth and a range of products that suit your risk tolerance.
Looking for a more diversified investment solution? The Evolve Innovation Index Fund (EDGE ETF) is an 8-in-1 innovation fund that invests in disruptive innovation themes across a broad range of industries, including: cloud computing, cybersecurity, egaming & esports, automobile innovation, 5g, fintech, genomics, and robotics & automation. For more information on EDGE ETF, visit our website at https://evolveetfs.com/edge/ or click here.
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