Shares in many companies have been sliding recently. In the past month, the FTSE 100 is down 5.3% and the Dow Jones has fallen 8.7%. Individual stocks have also plummeted. Scottish Mortgage Investment Trust is down 17% in the past month, while Cineworld has fallen 19.5% over the same period. How am I responding to this stock market correction? Let’s take a closer look.
What has caused this stock market correction?
A stock market correction is generally considered “a decline, usually short and steep”. This appears to describe the current market conditions quite accurately.
What are the causes of this stock market correction? The recent market move began with the Russian invasion of Ukraine.
Several firms with operations in the region saw their share prices fall sharply. Mining businesses like Polymetal International, Petropavlovsk, Evraz, and Ferrexpo declined massively.
While these companies suffered most, with Polymetal and Evraz falling out of the FTSE 100, the situation dented the broader market.
As quickly as these firms fell, shares in oil and metal businesses spiked. Investors worried about supply capabilities and sought safe havens.
Also, the pandemic has thrown economies into difficult positions. While the true cost is still unknown, inflation is rising. The Bank of England even expects inflation to reach around 10% this year.
Furthermore, interest rates increased from 0.75% to 1%. Further hikes are expected this year in the UK and the US.
Additionally, energy costs are growing. Much of this can be traced to the conflict in Ukraine, as tightening oil supplies are sending household bills skyrocketing.
Just today, the UK economy shrank by 0.1% as people are spending less, prompting fears of a recession.
All these factors have an impact on equity markets and have played a part in this stock market correction.
How am I responding?
Falls in share prices can cause fear and chaos among investors. The kneejerk reaction is to cut losses and sell.
But I’m not doing that. During stock market corrections and dips, I generally think it’s a good time to add to my portfolio at lower prices. I’d therefore buy instead of sell.
In this market environment, however, there are certain moves that are prompting me to stand aside.
One such move was the sell-off of International Consolidated Airlines Group shares after its first-quarter results last week. The results showed that passenger capacity had improved and losses had narrowed. Furthermore, international travel is recovering at pace.
Despite this positive news, however, the share price fell around 9% on the same day. In the current climate, I simply don’t understand these types of moves. When I can’t make sense of moves, I think it’s better for me to stand aside.
I have enough exposure to diverse stocks in my long-term portfolio, so I’ll therefore be doing nothing during this stock market correction and waiting patiently for market conditions to improve before buying more shares.