Undeniably, spring 2020 has tried the patience of investors.
An 11-year bull market ended. Key economic indicators went haywire. Household confidence was shaken. The Standard & Poor’s 500, the benchmark for the broad stock market, settled at 2,237.40 on March 23, down 33.9% from a record close on February 19.1
On April 17, the S&P 500 closed at 2,874.56. In less than a month, the index rallied 28.5% from its March 23 settlement.1 And while past performance does not guarantee future results, there is a lesson in numbers like these.
In the stock market, confidence can quickly erode – but it can also quickly emerge. That is a market lesson that should not be forgotten.
There have been many times when economic and business conditions looked bleak for investors. The Dow Jones Industrial Average dropped 30% or more in 1929, 1938, 1974, 2002, and 2009. Some of the subsequent recoveries were swift; others, less so. But after each of these downturns, the index manages to recover.2
Sometimes the stock market is like the weather in the Midwest. As the old Midwestern cliché goes, if you don’t care for the weather right now, wait a little while until it changes.
The stock market is inherently dynamic. In tough times, it can be important to step back from the “weather” of the moment and realize that despite the short-term volatility, stocks may continue to play a role in your long-term investment portfolio.
When economic and business conditions appear trying, that possibility is too often dismissed or forgotten. In the midst of a bad market, when every other headline points out more trouble, it can be tempting to give up and give in.
Confidence comes and goes on Wall Street. The paper losses that an investor suffers need not be actual losses. In a down market, it is perfectly fine to consider, worry about, and react to the moment. Just remember, the moment at hand is not necessarily the future, and the future could turn out to be better than you expect.
1. The Wall Street Journal, April 17, 2020
2. USAToday.com, March 21, 2020
Indices are not managed and do not incur fees or expenses. It is not possible to invest directly in an index.