While politics is at the forefront of everyone’s minds recently, events that can’t be ignored are unfolding in the markets as well. The recent turmoil in stocks last week has shown that the current market cycle is vulnerable to heading into a correction.
The technology sector has been experiencing extreme volatility.
Semiconductor stocks lost more than $500 billion in stock market value in one day last Wednesday (July 17, 2024). That same day, the Nasdaq experienced its worst day since 2022. The effect of the drop in chip stocks extended to S&P and Dow Jones, causing all three indices to end the week with a loss.
Technology stocks have been a driving force for stock market gains over the past few months, so it makes sense that a weak tech performance would affect stock performance as a whole. This bout of bad performance brought my attention to economists who have noted that today’s stock market, even when seemingly healthy and growing, has a lot in common with earlier busts.
Today’s stock market has similarities to other pre-crash markets.
Several economists see parallels between today’s stock market and the ones that proceeded major crashes in 2000 and 2008. Economist David Rosenberg has pointed out the similarities between the recent growth in technology stocks, the dot-com bubble of 2000, and the housing market bubble of 2008, calling the market a “speculative mania” back in February. After the dismal performance of last week, Rosenberg again brought out the comparison on Friday, July 19, writing in a note, “The massive daily swings reflect a manic market becoming unglued.”
If you’re like me and prefer to act rather than take a “wait and see” approach to protecting your hard-earned savings, now may be the time to explore your diversification options.
Gold could act as a hedge.
I try to look at market uncertainty as a potential opportunity for growth. With the right level of diversification in my portfolio, I hope to be able to weather any market volatility and even see growth during times when stocks may be headed downward.
But to find that level of portfolio diversification, I look to perhaps the oldest store of wealth in existence: physical gold. During the 2007–2008 Financial Crisis and the Great Recession, demand for physical gold exploded. Gold has a proven performance record of growth over the long term and is recognized as a form of currency in nations around the globe. In short, gold is, to many people, real money and thus preferable to paper-based assets like cash and stocks during times when our nation’s economic future is in question.
