Hey, I get it. Market Bears are all over the news headlines these days.
They come out of hibernation every few years or so during corrections.
We saw this as recently as 2016.
The funny thing is – as painful as it was, most investors today don’t even remember how they felt in January and February of 2016.
Back then, we had plenty of calls and emails from worried investors asking what was ahead for the stock market.
Is this time different? Would everything be ok?
Of course, it was hard to stay calm. The news was filled with scary headlines.
If you acted based on those headlines, you would have sold everything, bought as many non-perishable goods as possible…and dug in.
That means you would have missed a 53.25% gain for the S&P 500 and 63.29% gains in the DJIA between Feb 2, 2016 to Sept 28, 2018.
The fact is, it’s hard to not let emotions get in the way of rational thinking – especially when it comes to money… Like it or not, it’s human nature.
But it’s times like this when investors need to pump the emotional brakes a little bit, step back, and view markets from another perspective.
So today, we’re going to step away from the short term view that traders often rely upon and look at markets from a broader perspective – one that is of greater benefit to long-term investors.
As market technicians, we find it helpful to look to the next biggest trend to see the bigger picture.
Markets have certainly been volatile since early October and there’s been no shortage of headlines to remind all of us of the next “big scary thing” waiting in the wings.
Volatility is high in the short term, so we have to respect the possibility of whether this will become a full fledged bear market or not.
But investors would do well to remember there’s a big difference between bear markets and corrections.
And this is when looking at longer term data comes in handy.
Sometimes you can’t see clearly until you step back to look at the bigger picture.
Although today’s short term trends may look bearish, intermediate and longer term trends still look more positive.
And if that holds, you should be prepared if this turns out to be nothing more than a run of the mill correction.
Why? Well, check out this long term chart of the S&P 500 that goes back to 2009.
There’s a long term channel dating back to 2009 that the S&P has traded within. This channel isn’t visible looking only at a six month or 1 year chart.
And it’s no accident I chose to start the chart coming out of the 2008 market meltdown.
I use 2009 to bring up a point here. The bull market we are in today has not been a straight line to the top since the market bottom in March of 2009.
In other words, this bull market did not begin in 2009.
All too often, I hear market commentary claiming that this market is getting tired because the bull began in 2009.
That’s simply not true. The market has reset itself along the way.
We’ve had resets (corrections) in 2011, 2015, 2016…and here we are again in 2018.
This is important because after each of the prior “correction” to test channel support (blue lines), we’ve seen significant gains the following year.
Obviously, I can’t say for sure that history will repeat itself and markets will absolutely rebound.
But let’s zoom back in on a shorter term chart – view the trend within the trend.
Let’s say the S&P 500 does retest its February closing low of 2582 (dotted line). Even then you should still be open to the possibility that it may be great time to buy, not sell.
Everyone has to assess their own risk tolerance and determine what’s right for his or her own financial situation.
So if October’s slide in stock prices has you rethinking the amount of risk you’re currently taking, just take a second to remember your history before you go making any huge decisions.
If that still doesn’t do anything to help your market worries, it may be time to reassess your level of personal risk and make sure your portfolio matches.
Looking for a quick and easy way to do so? Consider scheduling an appointment with an advisor at Rowe Wealth.
We can walk you through a quick and easy survey that will allow you to determine your own “risk score”, which is a simple way to assess your comfort level when it comes to risk.
You’ll receive a personalized risk score like the one below…
At this point, we can also assess the risk score of your portfolio. If your account’s scores are much higher than your personal score, you’re exposed to too much risk, which means you’re more likely to panic and sell during times like this.
If, on the other hand, your account’s scores are lower than your personal score, you could be missing out on potential growth when the markets begin to swing back to the upside.
Click here to see available call times.
As always, invest wisely.
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