The stock market has experienced a significant downturn in recent weeks, causing concern among many Americans. Government cuts, tariff uncertainty, and sticky interest rates have all contributed to the tumbling market. Despite the current volatility, financial experts advise maintaining a level-headed approach.
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Market corrections are a normal part of the stock market cycle and can often present buying opportunities for long-term investors. “About two-thirds of the time, the S&P 500 has recovered all that it lost after the shock in a month,” says Dave Donabedian, co-chief investment officer of CIBC Private Wealth U.S. “The punch line is don’t do knee-jerk selling, and we’ve certainly had some of those conversations in the last week or so.”
With today’s additional decline, the S&P is very close to correction territory— that is, down 10% from its recent high of just three weeks ago. The Nasdaq got there last week.
The longer this selloff continues, the more economists will worry about “negative wealth effects”… pic.twitter.com/AcI1JXCLLt— Mohamed A. El-Erian (@elerianm) March 11, 2025
Panic selling during downturns can lock in losses, whereas holding onto well-chosen investments may pay off when the market rebounds. Historically, changes in sentiment often happen much faster than investors expect.
Posted earlier today:
My thoughts on the "why" and "so what" of the recent sharp drop in US stocks and their underperformance relative to other countries.https://t.co/9Ptnq8wYNK#economy #markets #investing #investors #stocks @FT— Mohamed A. El-Erian (@elerianm) March 11, 2025
The primary culprit for the current stock market swoon is the uncertainty caused by President Donald Trump’s imposition of tariffs on imports from China, Canada, and Mexico. The perceived risk of the tariffs could peak within the next couple of months.
Advice to maintain investment calm
“We knew tariffs were negative for economies, but it’s less the impact of the tariffs themselves than the uncertainty of the policy,” says Adrian Helfert, chief investment officer for alternative and multi-asset portfolios at Westwood. Diversification remains a key strategy to mitigate risks during unpredictable market periods. Keeping a diversified portfolio can help cushion against the shocks of a volatile market.
Some strategists even see this as a time to buy into parts of the market that have underperformed if investors do have extra cash. The Russell 2000 index tracking small-cap stocks is down 17% from its post-election high and has hardly budged since the end of 2020. “If somebody were all in on the S&P 500, I might counsel a little more diversification there, to maybe look at some things in the small- and mid-cap space or look at international equities,” says Donabedian.
Financial education and staying informed are crucial during such times. By understanding the underlying causes of the market correction and focusing on long-term investment strategies, investors can navigate through these periods more effectively. “For your average retail investor, the temptation is to say ‘I’ve got to do something’ during times like this, when the reality is, if you’re a long-term investor, often your best decision is to stay out of your own way,” says Jim Baird, chief investment officer at Plante Moran Financial Advisors.