The US stock market finally succumbed to the pullback that experts predicted in the back half of 2021 in January 2022. The S&P 500 fell as much as 9.8 percent, and The Nasdaq Composite Index even approached the bear market territory. February is expected to be more volatile.
Wait and See is the Best Policy
In February, investors should stick to the
wait and see policy. The political tensions between Ukraine and Russia are a
matter of concern. So is the fact that the Federal Reserve will soon tighten
the monetary policy and curb inflation. Many experts worry that it might damage
the economy.
February is also about digesting the
earning results from the last quarter of 2021 and assessing whether the pace of
inflation will change or remain unchanged at current levels. A higher interest
rate will likely bring more volatility and pressure on valuation levels. The
market might also see a modest gain this month.
Things to Look Out For
If you are interested in the stock market,
you should keep an eye out for the following:
Ø Earnings from Ford Motor, Amazon, Qualcomm, Spotify, and Meta Platforms,
among others.
Ø The rate decisions from the Bank of England and European Central
Bank are expected on Thursday.
Ø US factory orders, initial jobless claims, durable goods, and Fed
Board of Governor's confirmation hearing are also due on Thursday.
Ø The US payrolls report for January will be out on Friday
Winter Olympics will also be kicked off
this week, and Russia's President Vladimir Putin is likely to attend the
opening ceremony on Friday
The Fed Might Increase the Interest
Rates
As the businesses and households seem to be
in good financial shape, The Fed might raise the benchmark interest rates. The
goal will be to increase the cost of credit, and it will make the car, home,
and student loans expensive as everyone will need to pay more on interest
payments. Households are expected to be able to afford that as they gained cash
savings during the pandemic.
How to Invest in February?
If you plan to invest, you should focus on
building a portfolio that can go the distance instead of benefiting from the
short-term gains. The first half of the year is expected to be volatile, so
people should readjust the expectations for returns this year. Single-digit
returns are more likely this year. Investors shouldn't expect returns like last
year.
Experts also advise that investors must
focus on building a portfolio that includes all 11 stock market sectors of the S&P
500 as focusing on just one sector could be risky. A balanced portfolio is
highly recommended.
If you are just a beginner investor, you
should focus on creating a diverse portfolio using low-cost index funds and
ETFs that are already-diversified.
People who are new to the world of
investing can learn the basics of investing by checking out this useful link.
You can also read about the top 10 stocks to
buy in February 2022 here.
Sources:
https://www.forbes.com/advisor/investing/february-stock-market-outlook/
https://www.bloomberg.com/news/articles/2022-02-01/u-s-stock-climb-sets-brighter-tone-for-asia-open-markets-wrap
https://nrf.com/research/monthly-economic-review-february-2022