If you woke up in the Portland metro area this morning, your thoughts probably ran to what was happening outside. Did it snow? If so, how much? Is there ice? Will it be safe to get around? If it’s dangerous, how long will it last? Will my plans for the day be turned upside down?
Well, the stock market is kind of like the weather. There are times when the weather can create unsafe conditions. It can dangerous to be outside and attempt to move around. When this happens, it’s best to stay indoors and hunker down until the weather improves. And it usually doesn’t take long before things are back to normal.
The stock market had a pretty dismal fourth quarter. December was worst final month of the year for the market since 1931. The S&P 500 index was down 9% and the Dow Jones Industrial Average was down nearly as much. Most of us were not alive during the Great Depression, the last time the market had a December like this past one. But it goes without saying that it was not a pleasant time for investors.
But just as bad weather inevitably improves, the stock market turned on a dime and bounced back in January. The S&P 500 was up nearly 8%, its best January performance since 1989, surprising many market observers who predicted the end of the bull market. The Dow rose over 7% in January, its largest one-month rise since March 2016. Investors who crumpled their 2018 year-end statements and threw them in the trash, were undoubtedly relieved to have recovered some of those (paper) losses.
What can we learn from the weather … and the stock market? The weather can be risky. The stock market can be risky. The weather is unpredictable, and even experienced forecasters can get it wrong. The same is true of the stock market. Don’t pay too much attention to stock market analysts. When the weather is bad, it’s best to shelter in place. This is precisely what investors should do when the stock market becomes volatile. If the weather has been really bad, it may very quickly turn quite nice. Did you notice what happened immediately after the deep freeze in the Midwest last week? Temperatures jumped dramatically to above-normal levels. Just like December and January for investors. The weather is generally pretty hospitable, and we can live quite comfortably. The stock market is generally a place where patient, long-term investors are rewarded with reasonable returns.
PLEASE SEE important disclosure information at www.springwaterwealth.com/blog-disclosure/.