By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Fear Ramps Up

Well, the stock market carnage has gotten worse thus far in March.

Investors are now running scared that a recession is on the way, and selling their biggest winners from the past few years – namely the largest growth stocks like Apple, Amazon, and NVIDIA among others.

In fact, the Nasdaq 100 Index, which holds most of the well-known technology stocks is down nearly 15% in the past month versus the S&P down 10%.

While I wouldn’t call this an outright panic, earlier this week there was a record volume of put options traded on the S&P 500, which are essentially insurance contracts that pay off when the market declines.

Whether these were speculative bets on further market weakness, or investors clamoring for protection on their portfolios, it nevertheless illustrates a level of fear typically coincident with short-term buying opportunities.

While it is indeed possible that things get a bit worse before they get better, I’d bet a short-term, bounce-back rally is in the offing – if you’ve been taking too much risk, it could be a welcome opportunity to lighten up your exposure.

Trading and investing are two very different things.

Unfortunately, a lot of people don’t really know the difference, and the ease of online and mobile trading has created more new traders who think they’re investing, when they’re actually trading.

Warren Buffett is an investor.  He claims his ideal holding period is forever.  And indeed he has held many stocks for much longer than the average Robinhood user has been alive.

And while you certainly don’t need to adhere to Warren Buffett’s timeframe, most seasoned investors would tell you not to buy a stock you don’t see yourself holding for at least 3 to 5 years.

In the 1950s the average holding period for a stock was 8 years. The average holding period for stocks today? Five-and-a-half months.  And there are a lot of folks turning over their portfolios much quicker than that.

Not only is short-term trading difficult, but the skills required to be successful are completely different than investing.  Be sure to know whether you’re a trader or an investor – and why.

Looking Ahead: Fed to the Rescue?

There’s another Fed meeting next week.  Part of the reason stocks did so well last year was the anticipation that the Fed would be able to cut rates with inflationary pressures starting to dissipate.

And while they were able to cut the Fed Funds rate by one full percentage point last year, it wasn’t nearly as much as many market watchers were expecting . . . or hoping for.

The rate of inflation continues to improve, but only very slowly, and the Fed doesn’t want to move any more quickly than it needs to.

On the flip side, there is now widespread fear of a slowing economy and a jobs market that could be on the brink of a significant downturn.

Therefore, the Fed has a real needle to thread – convince the market that inflation is improving alongside an economy that is still healthy despite near-term headwinds – all while delivering an interest rate outlook the market likes without scaring it – good luck Fed.