Americans are voicing fears about their retirement savings as blue chip stocks continue to tank, raising concerns about a possible recession.
As of Thursday, the benchmark S&P 500 index has dropped more than 18 percent since the start of the year, wiping away $7 trillion in market value from the companies in the index.
The Dow Jones Industrial average is down nearly 14 percent since December, and bonds have also performed poorly despite their usual safe-haven status.
Most retirement accounts, including 401k and IRA plans, are invested in a mix of stocks and bonds, and Americans have seen steep declines in the value of their savings, with many dropping double-digits this year.
However, for younger workers that have decades left until their retirement, financial experts say there is no need to panic.
‘Over a long period of time, buy and hold works,’ said financial advisor Craig Ferrantino, founder of Craig James Financial, in an interview with DailyMail.com. ‘But if you’re uncomfortable, please take money off the table.’
So far this year, the benchmark S&P 500 has dropped 18 percent, wiping away $7 trillion in market value from the companies in the index
For younger Americans who have not lived through a market downturn, double-digit declines in their retirement savings may seem especially disturbing.
But historically, even severe market pullbacks of 20 to 40 percent only last about 14 months, and the S&P 500 rises about three out of every four years, according to CNBC.
‘In 10 years, this is going to be worked out,’ James said of the current market turmoil. ‘If I was ten years out from retirement — let’s say I’m 45 years old — you have a good chance of success if you stay the course.’
For older Americans who are approaching retirement, the simultaneous pullback of both stocks and bonds may be cause for more concern, and could even prompt a reassessment of retirement plans.
James said that the nearer one is to retirement, the closer they should be examining their investments and assessing their risk exposure.
‘Certainly if you’re 65, you want to be taking a good look at your risk-reward profile,’ he said. ‘You could start to de-risk if you’d like, wait for the storm to pass, and if you like, get back in again.’
With markets in turmoil, many have taken to Twitter to lament the losses in their retirement accounts.
‘My 401k is now a 301k,’ lamented one Twitter user.
‘I just checked out my 401k for the first time in a while. Hope your day is going better,’ joked MLB analyst Ryan M. Spaeder.
Podcaster Lauren Goode tweeted: ‘Password manager apps should literally have a ‘are you sure you want to log into your 401k’ pop-up right now.’
Roughly 60 million Americans have 401k plans holding collective assets of about $7.3 trillion, according to the Investment Company Institute.
The nation’s total retirement savings — including IRAs and employer-sponsored plans — were estimated at $37.2 trillion last summer.
On Thursday, the S&P 500 was creeping toward confirming a bear market, Wall Street’s term for a 20 percent decline from recent peaks. Pictured: Traders at the NYSE
The Dow Jones Industrial average is down nearly 14 percent so far this year
On Thursday, the S&P 500 was creeping toward confirming a bear market, Wall Street’s term for a 20 percent decline from recent peaks.
Once-hot tech stocks have led the decline, with Apple, Amazon, Facebook-parent Meta and Google-parent Alphabet all down more than 20 percent so far this year.
Netflix has been the worst performer in the S&P 500, dropping a dizzying 71 percent since the end of December.
‘The pullback in growth stocks, tech in particular, has been dramatic,’ Brian Price, head of investment management at Commonwealth Financial Network, told Reuters.
‘We have a reckoning, if you will, that maybe we did go too far too fast’ with many of those stocks.
Inflation and rising interest rates have battered so-called growth stocks, which have most of their projected profits far off in the future, and trade at many times the value of their current earnings.
The Labor Department on Thursday reported that wholesale prices soared 11 percent in April from a year earlier.
Wholesale inflation in the US soared 11% in April from a year earlier, a slight decrease from March but still near record highs
Many of the costs at the wholesale level are being passed on to consumers as companies try to cover higher expenses. That has raised more concerns about a potential pullback in spending that could crimp economic growth.
On Wednesday, the Labor Department’s report on consumer prices also came in hotter than Wall Street expected.
It also also showed a bigger increase than expected in prices outside food and gasoline, something economists call ‘core inflation’ and which can be more predictive of future trends.
Rising inflation has prompted the Federal Reserve to pull its benchmark short-term interest rate off its record low near zero, where it spent most of the pandemic.
It also said it may continue to raise rates by double the usual amount at upcoming meetings. Investors are concerned that the central bank could cause a recession if it raises rates too high or too quickly.
Consumer price data for April showed that inflation leapt 8.3% last month from a year ago
Inflation has been worsened by Russia’s invasion of Ukraine and the conflicts impact on rising energy prices. China’s recent lockdowns amid concerns about a COVID-19 resurgence have also worsened supply chain and production problems at the center of rising inflation.
The impact of higher prices for consumers has been global. On Thursday, Britain said its economy grew at the slowest pace in a year during the first quarter. That is raising fears that the country may be headed for a recession.
The latest round of corporate earnings are also being closely watched by investors as they assess how companies and industries are handling the pressure from inflation.
‘We’ll continue to pay attention to what the Fed has to say, but it’s worthwhile to pay attention to company outlooks on earnings calls,’ Price said.
‘That´s something that investors will focus more and more on as we go into the second half of the year, how durable are company earnings.’
The cryptocurrency bubble bursts… but is it a sign of a stock market crash to come? Digital investors lose fortunes as Ethereum sheds 20% of its value in 24 hours, Luna drops NINETY-EIGHT per cent and Coinbase warns customers may lose ALL their money
Digital currencies are plunging in value today in a so-called ‘crypto winter’ that has lost investors billions and is fuelling fears that it is the harbinger of a wider stock market crash.
The world’s second largest cryptocurrency Ethereum has joined the crash – plummeting in value by 20 per cent over the last 24 hours – in the digital downturn that is hammering investors who bought during the Covid years.
Cryptocurrencies are a form of digital money that use mathematics to create a unique piece of code that customers invest in.
Bitcoin was the original digital currency started in 2009 to bypass central banks, and an increasing number of offshoot currencies have been founded in recent years as well as digital art called non-fungible tokens.
They have all been sharply decreasing in value over the past few days including one currency that has lost 98% of its value as fears for the global economy spread and investors start to sell off risky assets.
More than $200billion has been wiped off the cryptocurrency market today alone.
However investors in more traditional stocks are also hurting, with US tech stocks also plunging in recent weeks including Amazon which has fallen 30 per cent in a month.
The FTSE 100 was down 2.5 per cent this morning after official figures showed the UK economy growing slower than expected in the first quarter – and going into reverse in the final month and 2 per cent, respectively.
Many amateur investors took to buying stocks and digital currencies during the Covid pandemic and made money because values were generally rising in a so-called bear market.
Ethereum has now lost more than half of its value this year, Bitcoin has shed a third of its value since January and Luna with 99 per cent of its value wiped out in the last 48 hours with suicide hotlines pinned to the currency’s Reddit page as a result.
Popular digital currency exchange Coinbase warned users could lose all of their money if the company goes bankrupt due to the crash.
During the pandemic, record low interest rates intending to boost economies led to investors buying riskier assets like cryptocurrency with higher rates of return.
As skyrocketing inflation leads to a rise in interest rates in order to safeguard savings, these assets are being sold in favour of safer government bonds – which will provide better returns.
The Bank of England pushed up interest rates by 0.25 per cent to a 13-year high of 1 per cent on May 5.
The Federal Reserve also raised their interest rates to 1 per cent on May 4 – with further rises expected to fend off the worst effect of inflation.
The NASDAQ experienced its sharpest one-day fall since June 2020 earlier this week and the crypto hit implies an increasing integration between crypto and traditional markets.
The index which features several high-profile tech companies, finished May 5 trading at $12,317.69 with shopping sites such as Etsy and eBay driving the fall.
The two companies saw their values drop 16.8 per cent and 11.7 per cent respectively, after announcing lower than expected revenue estimates.
Previously high-flying tech stocks have begun to dramatically fall in value in recent months – fuelling fears of a broader economic crash and making investors less likely to purchase assets.
Elon Musk’s Tesla has fallen 36 per cent in the last month amid news of the eccentric CEO’s attempts to buy Twitter.
The electric car manufacturer is now trading at $732 (£600), a dramatic drop from $1145.45 (£937.69) a month ago.
It hit an eight-month low today, briefly dropping below $700.
Musk, a vocal proponent of cryptocurrencies, has heavily influenced prices of Dogecoin and Bitcoin, and at one point had said the company would accept Bitcoin for purchasing its cars before axing plans.
Musk’s frequent tweets on Dogecoin, including the one where he called it the ‘people’s crypto’, have turned the once-obscure digital currency, which began as a social media joke, into a speculator’s dream.
The panic over crypto’s future led to slower transactions on the cryptocurrency exchange Binance.
Crypto traders bemoaned the ill-timed ‘scheduled maintenance’ which Binance announced earlier on Thursday – with some users on social media accusing the company of a deliberate ploy to stop them trading their assets in.
EToro global market strategist, Ben Laidler, said: ‘Since the March 23, 2020 market low, Dogecoin has perhaps surprisingly led price performance, narrowly outperforming Tesla.
‘Meanwhile bitcoin, the market’s largest crypto asset, has outperformed other major tech stocks despite its recent dip, beating the likes of Apple, Amazon and Meta.’
The token’s price surged by about 4,000 percent in 2021, after Musk posted a flurry of memes promoting the joke currency.
Delivery giant Amazon saw a 30 per cent drop on its price since April 11 with the stock hitting $2132.60 (£1725.19) earlier today – down from $3011.34 (£2468.75).
The fall of these stocks are fuelling fears that the ‘dotcom bubble burst’ of the early 2000s could be about to repeat.
In the late 1990s, the increase in computer and internet access led to large scale speculative trading in internet companies.
The interest resulted in companies with a ‘.com’ suffix being valued very highly.
After the US Federal Reserve increased interest rates after the end of the 1990s boom, speculative trading dipped and caused the dotcom bubble to burst, sending values plummeting.
The amount of business done by crypto exchanges, which hold the ‘blockchain’ ledgers that record transactions, is already dropping heavily.
Despite the outlook, crypto traders on social media have taken to the platforms to poke fun at the crash, encourage others not to sell and in some cases grieve their losses.
The subreddit r/terraluna was inundated with several posts of investors noting their losses – with some saying they could lose their houses or had lost their life savings.
Admins of the online investing group even had to put suicide hotlines pinned to the top of the forum for investors.
The acronym ‘HODL’ – meaning Hold On for Dear Life – has been used in several of these memes after it gained popularity in previous crashes as traders bet their investments on the coins making a recovery.
‘The crypto sell-off has been driven by the daunting macro backdrop of rising inflation and interest rates that has sent shockwaves through the tech sector, dragging cryptos down with it, confirming that Bitcoin and others serve little purpose as a hedge against inflation,’ said Victoria Scholar, head of investments at Interactive Investors.
Popular cryptocurrency Luna lost its pegging to the dollar this week, falling below $1 per coin, causing prices to drop dramatically as the industry panicked (similar to a run on a bank).
The coin, also called Terra, lost 99 per cent of its value in the last 48 hours.
‘The Terra incident is causing an industry-based panic, as Terra is the world’s third-biggest stable coin,’ said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
But TerraUSD ‘couldn’t hold its promise to maintain a stable value in terms of U.S. dollars.’
The crypto downturn has wiped more than $1.5trillion of value from the markets but investors will still be hoping that prices will be able to recover as they have done in the past.
However, unlike previous crashes, experts think that this latest drop in prices could prove permanent due to broader fears about global recession
Bitcoin hit and then-high of $19,754.19 (£16,194.81) on December 17, 2017 before falling below $11,000 (£9,000) just five days later – losing nearly 45 per cent of its peak.
The price recovered to pre-crash levels in November 2021.
The downturn has led to Coinbase, an online trading platform, issuing a stark warning to customers: Your crypto is at risk if the exchange goes bankrupt.
The popular exchange saw its value drop 27 per cent as a result of the crash.
According to Coinbase’s official website, the company has more than 98 million verified users. It is the largest cryptocurrency exchange platform in the United States.