Stock Market Insights: Unexpected support

BY DR. RICHARD L. BAKER, AIF® Founder & Senior Wealth Advisor at Steadfast Wealth Management

Hang on. It’s going to get bumpy.” On the eastern side of my Poppy’s place is an old logging road that goes up a steep hill to a ridge. I remember once Poppy had my mom in the truck with us, and he said, “Hang on, it’s going to get bumpy.” Then he went off the road up a crazy steep hill in the woods over rocks and down trees, bouncing us all over the cab of that Ford truck. Poppy and I loved it, but my mom cussed a little. We finally got to the hilltop, but it wasn’t a smooth ride. I think the market is about to do the same thing. I think it can make it to the top again, but it will be a bumpy ride on the way.

Since the market low on June 16, the S&P 500 Index has recovered 17% through August 16 but went backward over 3% as of August 25 (Yahoo Finance.) There is also a strong possibility of more bumpy days in the next few weeks. It seems like the market is taking two steps forward and one step back.

This quarter feels like what the market did in 2011. On August 15, 2011, the S&P 500 hit its yearly low of -19%. But then, in September and October of 2011, the market rebounded 17% off that low, only to go backward 10% in November 2011, according to LPL. Two steps forward and one step back.

Investors were beside themselves, thinking the market would bottom out again, but it didn’t. Instead, the S&P 500 rallied 16% over the final forty days of the year (YahooFinance) to finish 2011 almost exactly where it started. The S&P 500 went on to be positive at 13% in 2012 and 30% in 2013, according to JPMorgan.

We all wish investing was a smooth ride upward, but nothing in life is a smooth upward ride.

Nearly everyone gets frustrated when things in our life take a step backward after two steps forward. But forward is forward. Two steps forward with a one step back is still one step forward, which is better than where you were. It is even better when it is followed by another two steps forward.

Experienced investors know to expect a back-and-forth upward investment path. The problem comes when volatility comes unexpectedly. So, expect volatility and trust your investment plan because if you don’t, you might look at your investments and cuss a little like my mom.

Have a blessed week!

https://www.steadfastwealth. net/richard-baker