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1) The S&P/ASX 200 Index (ASX: XJO) is trading higher on Tuesday following the positive lead on Wall Street, where the S&P 500 rose 1.4%, with the tech-heavy Nasdaq also up a healthy 1.3%.
Tomorrow sees the US consumer price index reading which is expected to show inflation continues to fall, something that would see the Federal Reserve 'only' hike the interest rate 50 basis points higher on Wednesday.
A soft inflation print has equity watchers on high alert, given the S&P 500 roared 5.5% after November's headline inflation figure came in lower than expected.
In a rather heroic extrapolation, analysis from market maker Optiver suggested the US equity benchmark could again rise as much as 5.5% on Tuesday (US time) should headline inflation come in 0.2 percentage points below estimates on a year-over-year basis, according to Bloomberg.
The stock market is on high alert for a strong move either way, as evidenced by the VIX – a measure of volatility – jumping 9.5% higher in US trading on Monday despite equity markets also rising. The two gauges usually move in opposite directions.
2) The Tesla (NASDAQ: TSLA) share price bucked the trend in US trading on Monday, slumping another 6.3% to $167.82, its lowest close since August 2020.
A favourite amongst retail investors, Tesla shares are now down 58% so far in 2022, contributing towards what JP Morgan estimates is a 38% loss for US retail traders this year.
Gone is the "buy the dip" mantra, replaced by "sell before it's too late." Those that rode Tesla shares from around $35 to over $400 might be locking in profits, while those that jumped on late in the game might be booking tax losses, or even bailing out of the stock market altogether.
"The losses this year were unprecedented, especially for the younger generation of investors," said Giacomo Pierantoni, the head of data at Vanda in Singapore on Bloomberg. Whether they keep ploughing money into the market — buying the dip, as they say — or lose faith in investing and give up altogether could help determine their ability to retire in the coming decades.
3) Regardless of the fate of Tesla stock – I have no position – I do hope the many retail investors who have been dealt a tough investing lesson these past 18 months don't give up on the stock market, especially now that many popular COVID stocks have seen their share price cut in half, or more.
The stock market offers ordinary folk like you and me the opportunity to earn outsize returns, for very little effort. Invest regularly, ideally every month, into a low-cost index-tracking ETF like the Vanguard MSCI Index International Shares ETF (ASX: VGS) and, over time, you could return around 8% per annum, something that would roughly double your money every nine years.
All you need to do is resist any temptation to sell out during the inevitable periods of volatility, like we've been experiencing these past 18-odd months.
The above-mentioned data compiled by Vanda suggests US retail investors have collectively lost $US350 billion this year "as big bets on risky stocks and former high-fliers like Tesla Inc. backfired for the mom-and-pop set".
If that's you – and my growth-heavy portfolio has shed some serious blood this year – I urge you to stay the distance and make a lifelong commitment to investing in the stock market.
You may need to give up individual stock picking – you'll get some winners but you'll also need to handle the losses and your emotions when you are inevitably wrong – but you should be able to enjoy outsized returns by investing in one or more low-cost ETFs, like the one mentioned above.
4) As if to emphasise how difficult stock picking can be, especially in this current economic environment, take these two conflicting reports in the AFR today…
- Tech stocks set for rebound after a 'nightmare' year, according to Wedbush Securities.
"We believe overall the tech sector will be up roughly 20 per cent in 2023 from current levels with big tech, software, and semis leading the charge despite the macro and Fed wild cards abound."
- Goldman warns of 'a clear capitulation' in equities.
"A shift from inflation to growth concerns (i.e. a transition from rates to growth volatility) may trigger a clear capitulation from investors into next year."
So which is it to be?
I have no idea. As ever, as an optimist, and a lifelong stock market investor (albeit I started quite late, at the age of 24), I'm hoping 2023 will deliver a positive overall return, notwithstanding continued heightened volatility.
My simple plan, one that should see me into retirement and well beyond…
Stay invested. Keep investing. Add regularly. Ignore near-term volatility. Live happily ever after.
