Elon Musk says this is not the time to invest in stocks, is he right?

Last week, Elon Musk told Tesla's top executives that he had a "very bad feeling" about the stock investment situation. And he's not the only high-profile CEO predicting bad times ahead. JPMorgan Chase's Jamie Dimon warned investors to prepare for a “hurricane.” Let's look at why we should be worried and how to manage our portfolios to prepare for the worst.

Why should we be concerned?​​

1. Musk and Dimon used to be optimistic about investing in stocks​

Musk was until recently very optimistic about Tesla's prospects, with strong demand for its luxury electric vehicles, and about global markets, as illustrated by his $44 billion bid to buy Twitter. Dimon, meanwhile, until recently only saw “storm clouds” that he said could soon dissipate.

While headlines from such high-profile leaders should always be taken with a grain of salt, there may be a broader agenda at play, such a dramatic shift in sentiment should be taken as a warning sign.

2. It's not just Elon and Jamie who doubt investing in stocks裸​

Musk and Dimon have made headlines, but they are joining the growing chorus of corporate leaders warning about the deteriorating outlook for stock investing. Recent gains by economic stalwarts like Walmart (WMT) to innovative companies like cryptocurrency exchange Coinbase (COIN) have shown that gains are already being tested by higher interest rates and inflation. Overall, the trend is clear: American businesses are bracing for tougher times.

3. Tesla and JPMorgan are big companies in key sectors磊

Musk and Dimon run two of the most important businesses in the world's largest economy. When they become more cautious, we are talking about the possibility of thousands of workers losing their jobs, and the enormous implications for their global business partners, suppliers and customers. Furthermore, the impact is not just economic: Tesla has been a favorite for stock investment for a long time. JPMorgan, the largest bank in the world's largest economy, has been seen as a rare haven as interest rates rise.

If the prospects of these companies deteriorate further, the implications are likely to be felt not only in the economy, but also in financial markets.

4. Both companies are leaders in the economy​

Auto sales and global credit flow are reliable indicators of the health of an economy. When new car sales decline significantly, it often indicates that consumers are tightening their belts in anticipation of a recession. When global credit slows, it often indicates that banks are worried that businesses and individuals may have difficulty repaying loans.

And while there may be other factors at play for these two companies (Tesla's challenges may have something to do with the current shortage of key components, for example), neither company is alone in their industries in issuing warnings. And that's a clear warning sign that the outlook remains bleak in the near term.

5. Fear can spread around investing in stocks​

Periodically, stock investing goes through sharp and prolonged downturns, and “negative feedback loops” can act as catalysts. It's what happens when companies become more cautious about their prospects. Such caution makes investor sentiment more negative. The effect causes the prices of stocks and corporate bonds to fall, which increases the cost of borrowing for companies and that, in turn, affects the prospects of these companies and leads management to be even more cautious.

This feedback loop between economic fundamentals and sentiment in stock investing, which investing icon George Soros calls “reflexivity«, can quickly turn into a negative spiral, stopping only when prices have fallen significantly.<

6. Elon Musk's latest tweets are not in his usual tone​​

Let's be honest, this wasn't @elonmusk's usual provocative tweet. If it were, we might as well ignore it (or not…). His note to executives and Dimon's warning to investors were more than that. Together they add to the drumbeat of warnings from corporate leaders who are taking tough measures — cutting staff or rescinding recent job offers — to protect themselves against a deteriorating growth environment.

And this should worry us. The main reason why investing in stocks has not sold off more significantly is because investors are still hoping that companies can make it through a more challenging period. Musk's note to executives, calling for job cuts and a global pause on hiring, suggests it won't be easy.

Is stock investing set to fall further?​

There are many reasons to be nervous, but there are things we can do to ensure we are protected and open to opportunities when they appear in this challenging market. We must ensure that our portfolios are sufficiently diversified: we must not only invest in stocks, but also in Treasury bondneighbourhood, physical, raw materials and even the dollar American if we want a short-term hedge against the simultaneous fall of all assets. We can maintain an investment in high-quality stocks in sectors that are difficult to live without, such as healthcare, public services and basic consumer goods. And if we want to make a lot of money, it may be good for us to have some cash that we can deploy when we see a capitulation part in the stock investment market. Because only then will we maximize our benefits.

And in the meantime, if we can't resist the temptation to add some risk to our portfolios, let's look for assets that have already been sold a lot and possibly present more attractive risk-reward ratios, such as chinese stocks or even disruptive technology stocks.