Investors need to buckle up, as markets could drop by 20%
With markets volatile in Q1 2024 and the potential to drop by 20%, investors need to buckle up.
However, there may be more opportunities to make money.
US markets mainly declined on the first day of trading of the new year with the Nasdaq Composite recording its worst day since October.
Overnight, Asia-Pacific markets also fell, with stocks in South Korea and Taiwan leading the losses on Wednesday.
Again, China and Japan led losses in Asia-Pacific on Thursday. European stocks were on track for a mixed open, and there was little change for US futures. This considering Wall Street stock indexes ended the second session of the year down again.
Markets spooked and lack of clarity
Global markets have been spooked since the beginning of the year. There’s little indication that the volatility will diminish any time soon due to the uncertainty surrounding rate cuts.
Perhaps the principal trigger is the Fed’s December policy meeting minutes. These provided little indication of when or even if rate cuts happen this year.
As such, with this lack of clarity from central banks, including the Federal Reserve, it wouldn’t surprise me if we saw markets move into correction territory in Q1. Therefore, investors need to ensure they’re prepared for more turbulence.
A correction occurs when there is a decline of at least 10% but less than 20% from the most recent market high. Financial markets commonly undergo corrections, which experts consider a natural component of market cycles.
I believe a possible correction could provide investors even more opportunities to accumulate wealth, with the correct advice.
Are corrections the answer?
Indeed, corrections help markets to stay balanced by preventing excessive speculation and unsustainable price hikes. They offer an opportunity for overvalued assets to readjust to more reasonable levels.
Typically, investors use corrections to review their portfolios, reallocate assets, and ensure they position themselves optimally for potential growth in the future. Many investors believe corrections are buying opportunities, particularly if they are of the opinion that the assets’ fundamentals remain robust.
Those investors who pay attention to corrections often utilise them as an indication to review and adjust their risk management strategies. It helps them ensure that their portfolios are well-diversified and align with their risk tolerance
So, with the likelihood of heightened market volatility and potential up to a 20% drop in markets, investors need to prepare themselves for a bumpy ride. Yet the turbulence brings with it wealth-creating opportunities for those investors who view the market with a strategic outlook.
Read my previous blog post here.