Expect more volatility, but avoid letting the headlines alter your plans.
Provided by Lake Hills Wealth Management
Recent headlines have disturbed what was an unusually calm stock market. The political uproar in Washington may continue for weeks or months, and it could mean significant, ongoing turbulence for Wall Street.
As an investor, a retirement saver, how much will this turmoil matter to you in the long run? Perhaps, very little. There are many good reasons to remain in the market.
The earnings recession has ended, and the economy has strengthened. This past earnings season was a superb one. The first quarter of 2017 saw the biggest annualized leap in corporate profits in five years – nearly 15%, according to S&P Capital IQ. The good news hardly ends there. We may be at or near full employment – both the headline jobless rate and the U-6 rate measuring underemployment are back to where they were before the Great Recession began. Inflation has, at last, picked up, and the manufacturing and service sectors have been growing.1,2
The market is still having a good year. At this writing, the S&P 500 is up more than 5% year-to-date; the Nasdaq Composite, about 12% year-to-date. Given the economic trends mentioned in the above paragraph – and the possibility of more dovishness from the Fed – these indices could certainly see further 2017 gains.3
Remember that many investors come to regret emotional decisions. Emotions drove many people away from equities in the 2007-09 bear market, and they paid a price; after sinking to a bottom on March 9, 2009, the S&P 500 appreciated 100% in just four years. Some of those who sat on the sidelines as the bull market started ended up buying high after selling low.4
Here is another dramatic example: the S&P rose 15.2% in a month (in terms of total return) after hitting a low on October 9, 2002. So, just as the market can drop quickly, it can also recover quickly.4
Breaking news should not dissuade you from pursuing your long-term objectives. Your retirement savings effort is not momentary, but lifelong. The Dow, Nasdaq, and S&P 500 have climbed higher through all kinds of disruptions in their long history. The S&P has advanced in 72% of the years it has been in existence. Look at the big picture of market performance over time. Understand that pronounced, daily volatility is a disruption of the market norm, not the norm itself.4
1 - cnbc.com/2017/05/12/corporate-profits-just-posted-their-biggest-jump-in-five-years.html [5/12/17]
2 - nytimes.com/2017/05/05/upshot/were-getting-awfully-close-to-full-employment.html [5/5/17]
3 - markets.wsj.com/us [5/18/17]
4 - thebalance.com/u-s-stock-bear-markets-and-their-subsequent-recoveries-2388520 [9/23/16]