The US stock market is entering another correction. Since mid-July, the Nasdaq Composite index has tumbled by double-digits. Meanwhile, the S&P 500 doesn’t seem to be far behind. But is this a blessing in disguise for opportunistic long-term investors? And could it be the last major buying opportunity investors will see in a long time?
What’s up with the stock market?
Unlike the UK, inflation in America is proving to be far more stubborn. For more than a year, it’s continued to hover at or above 3% as the Federal Reserve’s monetary policy isn’t seemingly able to get it down to the 2% target. And last week, investor nerves were tipped over the edge.
The Labor Department just released the latest jobs report. And it was far weaker than expected. Excluding the farming industry, a total of 114,000 employment positions were filled. That’s massively below economist expectations of 175,000. Subsequently, US unemployment increased to 4.3% – the highest it’s been in three years.
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What does this have to do with the stock market? The data points to the economy slowing down far faster than anticipated by the Federal Reserve.
On the plus side, this does increase the probability of an interest rate cut in the upcoming September monetary policy meeting. But at the same time, it could also indicate the central bank delayed cutting interest rates too long, resulting in a potential recession.
A rare opportunity to earn massive returns?
A 10% drop isn’t as severe as the decline seen throughout 2022. But it’s still significant. And it’s not just Nasdaq stocks getting hit. Before its recent earnings rally, e-commerce giant Shopify (NYSE:SHOP) tumbled over 20% across the same period, as a weaker economy could mean less online shopping, resulting in slower growth.
But are investors getting a bit carried away? Indicators of a recession aren’t guaranteed. There have been plenty of times when investors have predicted the worst based on historical indicators, only to be proved entirely wrong. But even if a recession happens, too much focus on short-term challenges can lead to terrific businesses going ‘on sale’.
Despite what we’ve seen over the last couple of years, double-digit market corrections are actually pretty rare. And for those who missed out on the recovery momentum that kicked off in October last year, the recent volatility may present a new window of opportunity to snap up some bargains.
In my opinion, Shopify easily falls into this category. There’s no denying the shares trade at a premium, inviting more volatility through the door. But given the firm’s performance and potential, it’s a well-earned one. After all, analyst forecasts predict the global e-commerce market to potentially triple over the next 10 years. And Shopify seems perfectly positioned to capitalise on this trend.
Merchants are still flooding to the platform, and with a fresh partnership with retail giant Target, the volume of transactions moving through Shopify’s network is on track to continue surging. And since the company charges a small fee on each transaction, its revenue is likely to surge with it.
