Last week, stocks had their best week of the year. The S&P 500 rose eight days in a row, the first eight-day streak since November. In the last four years that saw an eight-day win streak, the average return was over 26% for the year.
As of now, the S&P 500 is up almost 18% through mid-August.
It wasn’t that long ago that the stock market saw a pullback that led some investors to a mild freak-out in anticipation of a worst-case scenario. The headlines were dominated by fears of a recession, the Fed being behind the curve on interest rate cuts and the yen carry trade ending.
Two weeks later, stocks are back near all-time highs, led by a broad-based rally of small caps, large-cap stocks, mega-cap stocks and international stocks. A run of favorable economic data across producer price index (PPI), consumer price index (CPI), retail sales and jobless claims is driving the rally.
More often than any other month, August is when we tend to see these types of out-of-the-blue events.
As the chart shows, this year saw the seventh-largest August crisis that caused extreme fear and volatility since 1990. The good news: Investors got through all of them, and we don’t expect this time — or the next time — to be any different.
Even the best years in the market have bad days and scary headlines. Does this mean that we are completely out of the woods with regards to market weakness or volatility? Not at all; the months leading up to elections often can be volatile.
There’s Something About August
S&P 500 returns in volatile Augusts (1990-present)
The last few weeks have been a good reminder of the adage that what matters is time in the market and not timing the market. The worst time to sell is in a market panic, no matter how long or brief that panic may be. If you get scared and decide to get out of the market, you probably will miss some of the best days of the year.
If you had invested $10,000 into the S&P 500 in 2004 and stayed invested over that entire time, the investment would be worth almost $64,000. If you tried to time the market or got scared and got out during one of the above August scares, and you missed the best 10 days, the return would be less than half that total. It gets worse from there.
What we see so often is that once an investor decides to sell out of the market, it becomes very difficult to get back in.
Fear takes over, and you think that the market can only go one direction — down. Fearful investors assume that even if the market bounces, they can’t get back in as they were by buying back in at a higher level than where they sold.
If you wait to get more clarity or less uncertainty, you will probably miss the best days — and that will cost you in the long run.
Time In the Market, Not Timing the Market
Performance of $10,000 invested in the S&P 500 the past 20 years (2004-2023)
The current economy’s underlying fundamentals are sound, but a large disconnect remains between the stock market, the economy and people’s sentiments about the economy. The job market has started to cool off since the remarkable strength of the pandemic. The number of job openings continues to trend downward.
Inflation has cooled significantly, but not quite to the level that the Fed wants to see. What’s more, consumer prices are still higher than they were several years ago, and people continue to feel it in their pocketbooks. Food prices have risen more than 25% since January 2020.
It also costs more to borrow money today than it used to. We became used to low interest rates for homes and credit cards. High rates combined with higher home prices have made buying a home much harder.
Finally, most people who are invested in stocks are invested through their 401K or retirement accounts. The growth in the market is not helping those individuals with increased costs of living, which may be why most don’t feel so great about the current economy even as the market hits new highs.
It is so important to keep your eye on the prize and focus on the big picture; economic growth remains strong, and the real economy continues to grow, which in turn, fuels the market to move higher.
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
Sources: Carson, Fidelity, JP Morgan, Opco
This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.
Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.
Past performance is not a guarantee of future results.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.
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