3 Ways To Respond To 2022’s Market Rout - InvestingChannel

3 Ways To Respond To 2022’s Market Rout

Proprietary Data Insights

Active Traders Top Technology Equities ETF Searches This Month

#1VanEck Vectors Semiconductor ETF66,051
#2Technology Select Sector SPDR Fund52,761
#3iShares PHLX Semiconductor ETF41,187
#4Vanguard Information Technology ETF16,216
#5iShares Expanded Tech-Software Sector ETF7,478

Stocks Only Go Up! 

Source: Google Finance 

Remember that pandemic mantra among a handful of very loud traders and investors on social media? 

Stocks only go up! 

They were wrong. 

Part of the beauty of this picture is that, if you’re a nimble trader, stocks such as AMC Entertainment (AMC) and GameStop (GME) could have made you rich – or at least more profitable – so far this year. In fact, the way AMC and GME have moved in 2022 likely made some people lots of money. You’re just not seeing the winners put the news on blast day in and day out on Twitter and Reddit. Traders routinely use options or simply just trade in and out of the sharp moves these stocks make. 

So, yeah, the DOW and S&P 500 had their worst Aprils since 1970 and the Nasdaq since 2000. However, these are just scary headlines. 

If you’re a trader, nasty headlines can be the stuff dreams are made of, even if you don’t short the market. Volatility might be your best friend. 

But, for you long-term investors, all hope is not lost. In fact, you might even have more opportunity – amid less stress – than the average trader.


3 Ways To Respond To 2022’s Market Rout

Key Takeaways:

  • Your best bet might be to do absolutely nothing.
  • Focus on picking individual stocks from a larger portfolio. 
  • Rely on relatively conservative, income-producing equities. 


Source: Google Finance

Do Nothing

The chart shows the YTD performance of the top 5 technology equity ETFs investors searched for over the last month, via our proprietary Trackstar data. 

Like the S&P 500 index (SPY) and Nasdaq 100 composite (QQQ), they’re all off big time in 2022. 

Source: Google Finance 


Aside from their shared carnage, these ETFs have one other thing in common. They tend to bounce back – and bounce back hard – after getting crushed. 

One way to look at it. 

Had you owned any of these ETFs at their March 2020 pandemic lows and held, you’d be in the green today. And by a lot. Even with what has happened in 2022. 

  • SPY up 80% (between March 2020 and April 2022)
  • QQQ up 84% 
  • SMH up 126%
  • XLK up 98%
  • SOXX up 127%
  • VGT up 96%
  • IGV up 58%

Outside of simply staying the course and doing nothing, your best bet would have been to buy more at each of these ETF’s March 2020 lows. 

Be A Stock Picker

If you own ETFs, you own a portfolio of stocks you most likely don’t have the time and money to own individually. So you take the broad exposure an index or sector-specific ETF provides. This is one way to keep a diversified portfolio. 

During times of relative market tumult, it never hurts to dig into what the ETFs you own actually hold. 

Google the name of any ETF alongside the words “top ten holdings.” If you do this with QQQ, which simply tracks the performance of the Nasdaq’s top 100 stocks, you’ll generate a list like this. 

Source: Invesco 


Of QQQ’s top ten holdings, three stand out in terms of performance. Only Apple (AAPL), PepsiCo (PEP), and Costco (COST) significantly outperformed their tracking index. 

Source: Google Finance 

You might consider taking individual positions in these stocks in reaction to the resilience, relatively speaking, they have displayed so far in 2022. If you believe in the stories behind these stocks – they’re really three of the market’s most reliable consumer-facing companies – you’re taking a measured move to increase your exposure to leaders who appear best positioned to weather storms. 

Go For More Conserative, Income-Producing Equities

As part of today’s ETF exercise, we looked at the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). This fund holds all of the market’s dividend aristocrats. That is companies who have increased their dividend payment every year for at least 25 consecutive years. We discussed dividend aristocrats in-depth last month in The Juice

Source: Google Finance 

As you move from specific tech sub-sectors to broad market indices to a relatively conservative income stock ETF, you still see red, but a decreasing amount. 

If you’re a long-term investor, it might be easier to stomach NOBL’s 6% YTD decline than, say, the double-digit drops of almost everything we’re looking at today. Everything except PEP, a dividend aristocrat and COST, which has increased its dividend payment six years in a row and could very well one day become an aristocrat. 

Plus, you collect income along the way. While you don’t want to fall for a dividend income trap, it is nice to know you can collect (and reinvest) cash from your investments during periods of poor stock price performance. 

For the record, NOBL is up an impressive 75% from its March 2020 pandemic low. So it’s not quite a sleepy ETF. It moves up with the so-called high flyers. 

The Bottom Line: During periods of market downside like we’re experiencing now, the best investors refuse to panic. Instead, they calmly reassess. 

Today, we outlined one version of an ideal portfolio. 

It includes relatively risky investments and broad market barometers that tend to bounce back the most after getting a beatdown, best-of-breed stocks from that larger assortment, and a dividend-focused ETF that will typically not fall as hard, but still bounce back with force. 

Use this time to consider the balance you’ve struck in your portfolio. Aim for a composition that looks something like this, but takes into account your time horizon, penchant for risk, and sector/individual stock preferences.

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