COVID lockdowns caused quite a bit of economic turmoil. While the damage was evident in many places, the stock market was one of the first places to see an immense downturn. There were talks of an irreparable stock market crash, and people were panic selling their portfolios around the nation. After a long period of uncertainty, the stock market actually managed to bounce back to record numbers much sooner than expected.
This past week, though, we have seen another frightening dip in the market. A second COVID stock market crash is the last thing we need, but are we in one? We have a video by Graham Stephan to analyze that may have some explanation.
Election Year Patterns
As Graham said, it is pretty typical to see downturns like this around election time. Regardless of your political views, a shuffled local and national government has a big impact on business. As a result, there are many that shy away from big investments right before the election. this is due to the fact that certain policies can render entire business models and markets completely useless. Nobody wants to chance their investments tanking in a matter of months, so the demand for shares goes down naturally. SO, we aren’t really in an unprecedented COVID stock market crash.
The “Options Magnifier”
The effect that options have on the stock market is something many are just now learning about. I call it the “options magnifier” because options in themselves don’t consistently pull markets any particular direction. By simply magnifying regular investments, they simply exaggerate what the market is already doing. So, since options trading has seen such a rapid increase over the last year, it is increasing the magnitude of a pretty typical election season market dip.
What Should I Do?
Like Graham Stephan, I’m not one to recommend timing the market. In this situation, I will simply be holding what I have to be safe. Now, if the prediction that this will rally is true, buying stocks while they are cheap isn’t a bad idea. so, I will just give my traditional stock advice: If you think it is time to buy, you should buy. Don’t spend money you don’t have, and only invest what you are willing to lose. Avoid options, as they magnify everything– including your losses.
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