Stock Market Insights: A good spark

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

"I just need a good spark." Our son was twelve years old when he bought a flint fire starter from Bass Pro, and he was struggling to light the fire in our firepit. He had his dry grass and small kindling ready, but he struggled to get a big enough spark from his flint and steel to light the fire. The market is looking for a good spark to set it aflame, too.

As the third quarter ends, it’s hard to be optimistic about stock and bond markets. During the third quarter, both stocks and bond prices went negative. Making it three consecutive quarterly declines for stocks and bonds. Since 1976 (187 quarters), stocks and bonds have never had three negative quarters in a row.

It is difficult to stay invested during times of market volatility. There is a lot of negative news out there about the high inflation, Putin’s war, and rising interest rates. But I think the markets have already priced in a lot of that bad news, and we could be in store for a stock rebound. We just need a good spark to ignite a rebound.

Here are a few potential sparks that could ignite a stock rebound:

• The upcoming third quarter earnings season,

• Midterm elections,

• Historically strong fourth quarters,

• and the Fed possibly pausing their rate hikes by year-end.

Investing is a forward-looking exercise; if all that negativity is already priced in, then better times are ahead. So this could be a good entry point for investors with cash parked. We may continue to have volatility in the short term, but I think we are closer to the end of this negative cycle than the beginning.

Finally, he striked the steel just right, and his big spark started a small flame on the dry grass. He scooped it up and blew on it, and the flame caught. It had taken him an hour and a half, and his hands were calloused, but he started the fire. He is a young man who won’t quit easily. I hope the market gets a few big sparks and is just as tenacious as him.

Have a blessed week!