If you thought the market had gone back up too far, too fast, you may have been right. Once again, the Bear is reminding us that he still exists and doesn’t go away that easily.
Understanding why the markets are experiencing swings is critical to maintaining the proper discipline in investing. I’ve learned over my 50+ years that, when we understand the “why,” the “how” becomes easier.
Over the past few weeks, a wave of optimism affected investors as they assumed that the worst of the COVID-19 issue was behind us and that the world’s economy (or, at least, the U.S. economy) would be on the upswing very soon. Problem is, optimism doesn’t give a stock its value – earnings give a stock its proper value. Simply put, for the past few weeks, the markets were expecting a quick recovery in the economy and that companies would soon be reporting strong earnings again to justify a higher stock price.
Not so fast.
On Wednesday, Chairman Powell of the Federal Reserve announced that “the Fed” would keep interest rates at their present value (almost 0%) through 2022. So far, so good. Then he went on to say that the economy is not in a good place (paraphrasing), which spooked investors. The selloff had begun.
It’s entirely possible, though impossible to predict, that we may experience the stock market lows we saw in March yet again. Or, different information could come out that contradicts Chairman Powell’s remarks from Wednesday. The short-term is unknowable. However, if we look at this through the lens of past crises, this will likely look like a blip on a chart a few years from now.
This is why we don’t try to time the market and make bold decisions based on what could happen. We invest for the long-term because we’re confident that, eventually, these problems will be sorted out and we’ll be back on the move again.
So, once again, I’m advising patience in the short-term while the markets sort themselves out. As I’ve mentioned to you over the past few weeks, it’s always uncomfortable to watch the value of your portfolio drop. But we must continue to follow the plan and not make a big mistake at the wrong time.
Please stay healthy and if you have any questions or concerns don’t hesitate to contact me, as usual.
Note: All investing involves risk including loss of principal. No strategy assures success or protects against loss. The economic forecasts set forth in this material may not develop as predicted.