Our stock market is starting to break down. Investor confidence is rapidly dissipating. Changes in how Wall Street works mean that the impact on your retirement portfolio may be much worse than you think.
As the S&P 500 index fell nearly 8% from its February peak, the U.S. stock market is approaching bear territory, suggesting a growing consensus among U.S. businesses suggests that a recession may be approaching. Consumer confidence has been at its lowest level since July 2022, after three consecutive months of declines, according to the University of Michigan Index. Retailers are suffering: Ralph Lauren's stock fell 19% last month alone. There are many other storage tanks.
Some of them are completely foreseeable. The market has been flowing upwards over the past eight years, reaching records under the first Trump administration and President Joe Biden. We may have long been required to make inevitable corrections. But the question is how ugly this person will become. If history is any guide, it can get bad: financial valuations tend to happen every 20 years or so, and we have been in the devastating financial crisis of 2008 for nearly 17 years.
This time it feels different because the damage was caused at least by the nine-week-old Trump administration, which recently marked its determination to impose disastrous tariffs, even doing so, freed up the recession. Company executives and Wall Street rattle.
President Trump is lighting the game. But to be honest, there are a lot of backbone ignitions around, thanks in large part to how buying and selling stocks changed in the past 15 years, as the changes to Wall Street regulations have made many ordinary retirement archive portfolios more susceptible to some of the highest stocks we have seen in our lives, many believe this is a recovery to the planet.
After the 2008 financial crisis, federal regulations were enacted to curb the role of big banks in trading stocks and bonds. But in doing so, they also pave the way for the entire new, less regulated but increasingly powerful capital pool controlled by Citadel, Point72 and Millennium Management, to enter the vacuum.
Although major banks once had professionals who would accumulate orders for buying and selling on behalf of their clients, so they might be able to convince clients to make bad investment decisions, new players rely on lightning computers programmed to follow strict rules of how much money they would lose before changing directions. Therefore, when investor sentiment is heading south, once it starts, it is difficult to stop bleeding in the market, making the situation even more turbulent.
Now, the way we buy and sell stocks has undergone a radical change, and is now intersecting with another major shift: the way we decide to invest in savings changes collectively.
You may remember when a currency manager like Peter Lynch suggested that an individual “buy what you know.” But as investors transfer from actively managed funds like Mr. Lynch’s Magellan Fund to actively managed funds like index funds, the dominance of these stocks has been passed through, which are capital pools automatically invested in selected stock lists, and the mix of these stocks will only change occasionally. Not only do such funds charge lower fees, they have also performed better than actively managed funds in recent years. So, there is no doubt that they are widely popular, and according to Morningstar, about half of the funds invested in index funds or other types of passive investment funds in the stock market (about $13 trillion) that target certain types or stocks.
Apart from another thing, this sounds good. New players like Citadel have taken over some of Wall Street's professional trading functions, and have also stimulated volatility in the market, entered and exited stocks every day, and created more motivation behind a few winners. Faster winners accelerate, and the more capital index is automatically invested. This cycle helps explain how seven technology stocks, including Apple, Yuan, Nvidia and Tesla, make up one-third of the value of the entire S&P 500.
The higher the price of a stock, the more expensive the profit it has, the greater the risk it has. Despite its recent decline, Tesla is still so overestimated by traditional measures of multiples of its revenue that it deserves its own galaxy. However, this has not slowed down investors' demand for it: Tesla shares have risen 750% over the past five years. Meanwhile, Apple grew more than 275%, while Nvidia grew more than 2,000%. If you invest in a standard S&P index fund, nearly one-third of many people’s funds are essentially replaced by seven stocks whose value has increased exponentially in recent years, rather than bargaining.
Corrections may have been made. The government role Trump allowed Tesla CEO Elon Musk to play may be interesting to both of them, but it has caused serious financial trouble for Tesla shareholders, including the average people who invest in index funds. Tesla shares have lost nearly a third of its value in the past month alone. As a member of the grand seven’s charter, Tesla’s fall has exacerbated the decline and volatility of the stock market over the past seven weeks, given the improvements in the market structure. Of course, Tesla has a great possession along the way, but now it seems like a lot of pain because it seems like a knife.
Now, it might be a good time to check out your retirement fund, as you might think that security index funds are actually tilting towards the largest, worst tech stocks. They may suddenly face financial valuations.
