As stocks began to claw back their losses following Monday’s sharp decline, it was probably hard for investors to see any good news ahead. New York’s Dow Jones Industrial Average, made up of 30 top blue-chip companies, took its biggest dip since last October, and the Toronto Stock Exchange fell the most it has in almost five months.
For an increasing number of traders who may have been fooled into thinking they could not lose during the pandemic endgame, suddenly the old mantra about investment products that “past performance is no guarantee of future results” showed it can also apply to an entire market.
Even as traders moved to buy the stock market dip, cryptocurrency speculators got a fresh market warning as bitcoin declined sharply again, at one point trading below $29,500 US.
Put more starkly, bitcoin traders who bought the digital tokens at their April high—above $62,000 US—and sold them Tuesday morning would have lost about 53 per cent in three months.
Reports predicting new moves by U.S. Treasury Secretary Janet Yellen to increase crypto regulation were one of the immediate triggers of the slump—and just part of a wider trend by governments and central banks to rein in the rapid growth of the tokens.
“It’s become popular during the last year to argue that ‘stocks only go up,’” U.S. financial adviser Cullen Roche wrote earlier this year on the website Seeking Alpha. “While the stock market is a wonderful long-term asset, it is often a horrible short-term asset.”
Over a 10- or 20-year time horizon, buying shares in publicly traded companies has been a reliable way of saving for the longer term future, even if stocks can face sharp declines in the short term.
During the pandemic, however, with time on their hands and maybe a little extra cash in their pockets, a surge of new investors decided to try their hand at baking sourdough bread and trading stocks.
Earlier this year, the TMX Group, which owns and operates the TSX, reported that nearly half of all stock trading was being done by retail traders.
“The positive strength in trading, equity trading particularly, and what’s driving it in terms of retail interest, is something that we could see for some time,” TMX CEO John McKenzie told Reuters at the time.
But how long that retail interest will last if stocks reverse their recent upward trend remains to be seen. Because while rock-bottom interest rates and government handouts since the pandemic hit may have helped make investing feel safe, analysts remain wary about what will happen once central banks decide it is time to increase interest rates.