Stocks Are Crashing—That’s a Great Reason to Sit Tight

The red numbers in your 401(k) today might appear to vindicate warnings about an artificial-intelligence bubble and infirm economy. But don’t tilt your portfolio toward full pessimism just yet.

The S&P 500 was down 3% Monday, with the Nasdaq falling even further. Investors have been selling the year’s best performers, concerned that disappointing second-quarter results from big technology companies such as Alphabet , Tesla and Intel are a sign that the AI frenzy is a fad. Also, consumer discretionary stocks have become the worst-performing sector in the S&P 500, as lacklustre labour-market reports have raised worries that the Federal Reserve made a mistake by waiting until September to cut interest rates.

Overseas, the Stoxx Europe 600 closed almost 5% below where it was a week ago, whereas the Swiss franc, a common haven asset, is up roughly 4%. The most eye-popping moves happened in Asia, though, where the Nikkei 225 plunged 12.4% Monday in the worst trading session since Oct. 20, 1987—the day that followed Wall Street’s infamous Black Monday.

Yet it is precisely the breakneck speed with which Japanese equities tumbled that should give most investors a reason to remain calm.

As a guideline, sudden market selloffs are less dangerous than those that unfold progressively over time. This is because investors who rationally price in bad economic data often do so slowly, as it trickles in. Flash crashes, conversely, are often a sign that some tidbit of bad news made speculative bets go awry, triggering a cascade of trades, many of them automated.

Japan is particularly prone to such reversals because interest rates there are so low that many investors use them to fund higher-yielding investments in other currencies. Whenever markets get jittery, these “carry trades” tend to unravel, pushing up the yen and hitting Japanese stocks, many of which are diversified exporters that do better when global growth accelerates. Amplifying this tendency, Japanese stocks had this year become extremely popular among global investors.

The timing of the rout also points a finger at the Bank of Japan , which last week decided to tighten monetary policy for the first time in 17 years with the explicit goal of boosting the yen. Investors who rushed to cover their bets then triggered the reversal of stretched trades elsewhere, including in the U.S.

One of the most striking features of the S&P 500 for most of this year has been its extremely low volatility. Until July, the Cboe Volatility Index, or VIX, was at 2019 levels, and kept sliding lower even as investors made big changes to their monetary-policy forecasts.

While the VIX is often dubbed Wall Street’s “fear gauge,” the options contracts it is based on often themselves influence volatility. Whenever investors make bets against market swings, as they have recently in the U.S. by buying lots of structured products , the banks that sell those options are forced to take the other side. These hedges then suppress volatility in the stock market.

The flip side is that whenever a panic breaks through this feedback loop, volatility skyrockets. As the stock market opened Monday, the VIX hovered above 50, making it the highest weekly jump since the onset of the pandemic, though it later fell below 40.

This suggests the selloff is disproportionate, especially looking at the historical record: 87% of the time, investors who bought the S&P 500 on days when the VIX closed at 30 or higher ended up making money a year later.

The second-quarter reporting season has brought mostly good news, with 78% of the S&P 500 firms that have reported so far beating analysts’ earnings estimates—compared with a 74% 10-year average. Both AI-related companies and the rest are reporting net income above what was forecast a month ago. Overall, the U.S. economy still looks robust: The unemployment rate has gone up because the labor force has expanded.

Also, looking at S&P 500 returns since 1994 shows that selling based on the previous day’s falls is a bad strategy. Electing to move into cash after large monthly declines fared better, but still less well than sitting tight.

This isn’t to say that concerns about an economic slowdown or high tech valuations aren’t warranted. Investors have reasons to diversify away from the AI trend or swap more cyclically exposed stocks for more “defensive” names. Indeed, selling out of stocks after particularly exuberant days and months has historically tended to be a winning move. But hindsight is a terrible guide to investing your savings.

While golden visa schemes proliferate, Switzerland remains famously protective about buying property in the country.

Rules known as Lex Koller, introduced in 1983, prohibit foreigners from buying homes in cities like Geneva and Zurich. And in the few locations where foreigners can buy, purchase permits come with rules around size and occupancy.

But non-Swiss buyers who have coveted an Alpine home now have a pathway to ownership, and it’s likely to come with financial upside. The Swiss government has waived residency requirements in a handful of locations where developers have negotiated exemptions in exchange for billions of dollars of investment in construction and improvements.

Andermatt, a village 4,715 feet above sea level in the centre of the Swiss Alps, is the largest municipality to open up to foreign buyers.

Its main investor, Egyptian magnate Samih Sawiris, “believed Andermatt could become a full-town redevelopment when he first visited in 2005, but the key was to offer real estate to people outside of Switzerland,” said Russell Collins, chief commercial officer of Andermatt-Swiss Alps, Sawiris’s development company.

“We became the only large-scale real estate development in Switzerland with an exemption from the Lex Koller regulations.”

In the ensuing decades, Andermatt has become a major draw for high-net-worth buyers from around the world, said Alex Koch de Gooreynd, a partner at Knight Frank in London and head of its Swiss residential sales team.

“What the Andermatt-Swiss Alps guys have done is incredible,” he said. “It’s an impressive resort, and there is still a good 10 years’ worth of construction to come. The future of the resort is very good.”

Andermatt’s profile got another boost from the 2022 acquisition of its ski and resort operations by Vail Resorts, which runs 41 ski destinations worldwide.

“Vail has committed to 150 million Swiss francs (US$175 million) in investments, which is another game-changer,” de Gooreynd said.

“If you’d asked me about Andermatt 10 years ago, I would have said the ski areas weren’t good enough of a draw.”

Along with the five-star Chedi Andermatt hotel and residences, which opened in 2013, residential offerings include the Gotthard Residences at the Radisson Blu hotel; at least six branded residences are planned to open by 2030, according to Jeremy Rollason, director for France, Switzerland, and Austria at Savills Ski.

“Most of these are niche, boutique buildings with anywhere from eight to 14 units, and they’re releasing them selectively to create interest and demand, which has been a very successful approach,” he said.

“Andermatt is an emerging destination, and an intelligent buy. Many buyers haven’t heard of it, but it’s about building a brand to the level of Verbier, Courchevel or Gstaad.”

The Alpinist, Andermatt’s third hotel residence, is slated to open in 2027; with 164 apartments, the five-star project will be run by Andermatt-Swiss Alps, according to Collins.

Other developments include Tova, an 18-unit project designed by Norwegian architects Snohetta, and La Foret, an 18-apartment building conceived by Swiss architects Brandenberger Kloter.

Prices in Andermatt’s new buildings range from around 1.35 million francs for a one-bedroom apartment to as much as 3.5 million francs for a two-bedroom unit, according to Astrid Josuran, an agent with Zurich Sotheby’s International Realty.

Penthouses with four or more bedrooms average 5 million-6 million francs. “Property values have been increasing steadily, with an average annual growth rate of 7.7% in the last 10 years,” she said.

“New developments will continue for the next 10 years, after which supply will be limited.”

Foreign buyers can obtain mortgages from Swiss banks, where current rates hover around 1.5% “and are declining,” Josuran said.

Compared to other countries with Alpine resorts, Switzerland also offers tax advantages, said Rollason of Savills. “France has a wealth tax on property wealth, which can become quite penal if you own $4 million or $5 million worth of property,” he said.

Andermatt’s high-end lifestyle has enhanced its appeal, said Collins of Andermatt-Swiss Alps.

“We have three Michelin-starred restaurants, and we want to create a culinary hub here,” he said. “We’ve redeveloped the main shopping promenade, Furkagasse, with 20 new retail and culinary outlets.

And there is a unique international community developing. While half our owners are Swiss, we have British, Italian and German buyers, and we are seeing inquiries from the U.S.”

But Andermatt is not the only Swiss location to cut red tape for foreign buyers.

The much smaller Samnaun resort, between Davos and Innsbruck, Austria, “is zoned so we can sell to foreigners,” said Thomas Joyce of Alpine property specialist Pure International.

“It’s high-altitude, with good restaurants and offers low property taxes of the Graubunden canton where it’s located.”

At the Edge, a new 22-apartment project by a Dutch developer, prices range from 12,000-13,500 francs per square metre, he said.

As Andermatt’s stature grows, this is a strategic time for foreigners to invest, said Josuran of Sotheby’s.

“It might be under the radar now, but it’s rapidly growing, and already among Switzerland’s most attractive ski locations,” she said. “Now’s the time to buy, before it reaches the status of a St. Moritz or Zermatt.”

Stocks Are Crashing—That’s a Great Reason to Sit Tight

The sudden selloff in Japanese equities and a surge in the VIX suggest the current rout is being exaggerated by trend chasers

The government in Switzerland has waived residency requirements in a handful of locations, including one that’s growing fast.