The run-up to the 2024 election is an especially fraught time. The July 13 assassination attempt on Republican candidate Donald Trump and the July 21 announcement by Democratic President Joe Biden that he will not be pursuing a second term and is endorsing Kamala Harris for the Democratic nomination have added to the sense of uncertainty and unease felt by many, making this an election season unlike any in recent memory.
These seem to be uncertain times on several fronts. The situation in the Middle East remains unsettled, with the threat of regional war that could expand outside the region. In America, political discourse has devolved into name-calling and threats. As we approach an election in six months, we are experiencing the first-ever criminal trials of a former president and current presidential candidate. Both the major party candidates would be among the oldest U.S. presidents in history. And recent market activity suggests this uncertainty is making the markets skittish.
Happy New Year!
Flipping the calendar to a new year can cause us to reflect on the year that has just ended, but also to look toward the year to come. And 2024 gives us a lot to think about.
Investors are regularly warned that trying to time the market by picking the next hot stock and dumping other stocks before they tank almost never works. Peter Lynch, manager of the Magellan Fund at Fidelity Investments from 1977 to 1990 famously said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
We are a little past the halfway point of the year, so it is a good time to take a look at where we are – and where we might be going.
The last three years have been very difficult for investors, starting with the huge drop during the pandemic and then the rebound of 2021. Since then, the market has been volatile as inflation, rising interest rates and political issues continue to batter investors. Now it might be time to take a breath.
Many investors were happy to see the page turn on 2022, and they are looking with some concern at 2023. That makes this a good time to look at where we stand – and where we might be headed.
This might be a good time for investors to recall the fable of the tortoise and the hare. In the story, the speedy hare and the plodding tortoise agree to a race. The hare goes out to a big lead, so he decides to take a nap. While he naps, the tortoise continues his steady trip to the finish line and beats the hare.
In times like these, people who take a slow and steady approach might also win the investment race – or at least have a better chance of staying even.
When the markets are going well, it can be easy to forget that over time they are cyclical. And right now, we are in a down cycle. In fact, this is the worst first half for the Standard and Poor's 500 in more than 50 years.
To paraphrase Thomas Paine, these are the times that try investors' souls. When the market is strong, you probably don't spend much time looking at your portfolio. But in turbulent times, you might be getting a little queasy.
Did you have a favorite roller coaster as a kid? Mine was the Shooting Star at Coney Island in Cincinnati, where I grew up. The Shooting Star has been gone for decades, but I still remember the breathtaking rises and the stomach-churning drops.
That sensation is great for a ride, but not so good for a portfolio. And recently, it seems as if the markets have been on a roller coaster.
There are many things that can affect the performance of the financial markets – and you as an individual investor can control virtually none of those things. For example, recently the markets have been reacting to slower-than-hoped progress controlling COVID-19 infections and the effect of that on the economy, including lackluster U.S. employment numbers and disruptions to the supply chain. There also has been uncertainty about increasing the debt ceiling and passage of an economic plan, as well as rising gas prices and the effect on family budgets and the movement of supplies. There are some things you as an individual might be able to do about these issues: Take COVID-19 precautions, reach out to your government officials, ramp up hiring if you have a business.
As more Americans became fully vaccinated and COVID cases began to fall, many people felt like they were awakening from a long nightmare. That optimism also was felt by investors. The Standard & Poor's 500 index closed June 30 at a record high and was up 14% for the year at the end of the second quarter. Meanwhile, the Dow and the Nasdaq each rose 12% for the second quarter.
Spring is always a hopeful time, a season of rebirth. But this spring seems a little more welcome than most. After more than a year of being on the dark side of a worldwide pandemic, it seems the light may be returning. Of course, everyone still needs to exercise caution – we are not out of the woods yet, as recent COVID-19 numbers are showing. But the availability of vaccines is making a return to normal seem possible in the relatively near future.
2020 was a year like no other. There were some bright spots, of course – most notably the very strong performance of the stock market. But for the most part, we seemed to spend much of the year lurching from crisis to crisis, with rising death counts, closing schools, growing unemployment. As we move into 2021, many of us are hoping mostly for a more normal experience.
These are uncertain and exhausting times. We are trying to understand and respond to the health and economic effects of COVID-19, which has killed more than 1 million people worldwide and more than 215,000 Americans while leaving many businesses and employees scrambling to stay afloat. We are concerned about the heated election rhetoric fed by extreme partisanship and divisive politics. Many of us feel worn down and nervous, especially as we face a possible winter resurgence of the virus. Conventional wisdom tells us that the markets do not like uncertainty, and they have been bouncing all over in recent weeks and even months.
There are lots of things to worry about these days. We are in the midst of a worldwide pandemic, with no cure and no vaccine. Most scientists agree that what the U.S. is experiencing is not the second wave – it is just a surge in the first. This health uncertainty has caused deep concern among investors and has, from time to time, rattled the markets.
In the water, a fish is graceful, beautiful and in control. But when you land a fish into a boat, it flops around on the bottom of the boat, not knowing what to do next. When it comes to investing during this COVID-19 pandemic, we are all fish out of water.
As investors, we have never seen anything like this. The factors that have caused the Dow to have its worst first quarter in history are not financial in nature. Rather, this market volatility is caused by a worldwide health crisis and the effects of that crisis, from social distancing to unemployment to an overall sense of fear and stress. Yes, it is costing many people growth in their portfolios. But by the time it ends, experts believe, it could cost the lives of hundreds of thousands of Americans, and likely millions of people worldwide. We have never seen anything like this in the markets. But that doesn't mean we are helpless before it.
The U.S. stock market came down with a case of coronavirus this week, as the Dow fell more than 1,000 points Monday on fears that the virus would cause serious problems in the world economy. The slide, which wiped out the market's 2020 gains, was followed by a drop of 879 points Tuesday, as politicians and investors alike scrambled to come up with strategies to help deal with the situation.
One of the things for which we are grateful in the year past is the performance of the stock market. Virtually all the indices posted records, and the Standard & Poor's 500 saw its best year since 2013. That is good news for investors large and small.
Still, there were periods during the year when investors were nervous and that positive outlook seemed unlikely. In August, for example, the market dropped 800 points in one day, leaving investors spooked and prompting talk of a coming recession.
In recent months, the markets have been running in place, showing a whole lot of movement without actually going anywhere. There has been a lot of volatility, including several steep drops and rises fueled mainly by the ongoing trade dispute between the U.S. and China. But at the close of the quarter, the markets ended up almost where they had started.
Last week, on August 14, the Dow Jones Industrial Average fell 800 points, its biggest drop of the year. Investors were spooked by the specter of recession, and those concerns had been nudging markets downward for a while, though not as dramatically as on August 14. Markets recovered somewhat the rest of the week, but they are still skittish and well off the historic highs set earlier this year.
Like a table, market performance rests primarily on four individual legs: profits, inflation, interest rates and psychology. If you are feeling a little jittery about the markets, it might help to take a look at each of these legs.
The economic outlook is a mixed bag after the first quarter, with positive signs and a few things that are more concerning. Let's start with the positive signs.
The stock market continues strong. The Standard & Poor's 500 is up double digits for 2019, and stock prices are still reasonable. Unemployment is low, inflation is low, and GDP growth is positive. Corporate earnings are positive, although they are not as strong as they were in the first part of 2018.
There is no doubt that the last year, especially the last half, was tough for the stock market. Many investors are feeling jittery. But it is important to differentiate between short-term drops and increases – even when those individual drops and increases are large – and long-term market outlooks. If you are worried about what will happen with your portfolio this year, it can be helpful to look at some facts.
If you have been an investor for more than a decade, you might be getting an unsettling sense of deja vu. This current bull market – one of the longest in history – has had relatively little volatility in its nine-year run. But recent weeks have been characterized by big gains followed by bigger, stomach-lurching drops. On last Friday morning the Standard & Poor's 500 Index was down 10 percent from its 52-week high, putting it at least temporarily into an official correction.
There are times when the market movement seems not to reflect what is really going on. This is one of those times.
In the first quarter of this year, companies in the Standard & Poor's 500 reported earnings growth of almost 25 percent. In this quarter, earnings are expected to be almost as good. Yet at the start of the year, the S&P 500 was at 2683.7. At the close on July 30, the S&P was 2802.6, which is up only about 4.4 percent. If earnings are so strong, why isn't the market reflecting that?
From a purely economic standpoint, future market movement should come down to the result of a tug of war between earnings and interest rates. For some time now, we have been seeing companies report exceptionally good earnings that – especially in light of historically low interest rates for years – have continued to fuel a rise in the markets. According to FactSet Earnings Insight for April 6, the estimated Standard & Poor’s 500 earnings growth rate for the first quarter is 17.1 percent.
Just after the new year, the Dow Jones Industrial Average closed above 25,000. Then, on January 17, it closed above 26,000. Other market indices have recorded similar rises. So what’s going on?
Well, remember the story about the three blind men and the elephant? Each of the men was touching a different part of the elephant and so had a different opinion about the kind of animal it was. That's similar to how observers see the recent market surge.
If you pay attention only to your favorite newspaper or news channel or news feed, you might be of the opinion that things are going to hell in a handbasket -- whatever political landscape you favor. In addition to national tragedies such as the mass shooting in Las Vegas and hurricanes in Texas, Florida and Puerto Rico, there are congressional battles, international saber rattling, Cabinet upheaval and arguments about NFL players either kneeling or not kneeling. It can seem there is a circus going on in Washington.
There is a lot of news these days, but the markets don't seem to be paying much attention. The big jumps that followed the election have mostly leveled off, at least for the moment. Instead, the markets seem focused on the kind of data that drives economic rather than political fortunes. And that data is largely mixed.
More than two months into the Trump presidency, its effect on the markets remains unclear. After a brief dip right after the election, the Dow Jones Industrial Average started a climb that topped out at a record-breaking close of 21,115 on March 1. Most market watchers gave at least some of the credit for the rise to optimism on the part of companies and investors about the new president's commitment to reducing regulations, cutting taxes and otherwise enacting a business-friendly agenda.
As we near the inauguration of President-elect Donald Trump, there seems to be a kind of underlying nervousness among many investors. This is not unusual; investors are often concerned about how the markets will adapt to a new administration. But it could be more profound than usual this time around.
The markets continue to be stuck in the sort of holding pattern in which they have been stuck for months. They go up and down, but for the most part they are within a fairly small range, and they have been unable to sustain a good run.
Most investors worry about the impact that certain events might have on the movement of the markets. However, the things many investors choose to worry about are often not likely to have any serious long-term effect.
Despite a fair amount of movement up and down so far in 2016, the market does not seem to be experiencing any long-term movement. In fact, Jim Paulsen, the chief market strategist at Wells Capital Management, recently referred to this as "a bunny market" because it "hops around a bit but really doesn’t go anywhere."
