The Stock Market Is Shaky Right Now. Here's Why I'm Not Worried.
Key Points
The stock market has gone through some wild swings this year.
But it’s still on track to deliver inflation-beating gains over the long run.
The S&P 500 (SNPINDEX: ^GSPC) and Nasdaq (NASDAQINDEX: ^IXIC) went through some wild swings after the Democrats swept the midterms on Nov. 3. Energy, industrial, and technology stocks struggled amid concerns of slower AI spending and shifting regulations.
However, expectations for reduced inflation and lower oil prices -- especially if the Iran war ends -- lifted many real estate, financial, and consumer discretionary stocks. The stock market still seems shaky today, but I wouldn't fret too much over its near-term moves.
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Why shouldn't you worry about the stock market?
The S&P 500 has generated an average annual total return of more than 10% since its inception in 1957, even as the U.S. endured ten official recessions and 11 bear markets.
Investors who tuned out the near-term noise and focused on long-term gains were well rewarded, but those who prematurely sold their stocks left a lot of money on the table.
During the last four bear markets (the dot-com crash, the Great Recession, the COVID crash, and the Fed's tightening cycle), the S&P 500 experienced peak-to-trough declines of 49%, 57%, 34%, and 25%, respectively. Investors who bought more stocks during those downturns reaped even bigger rewards than those who simply held them through those volatile swings.
U.S. Bank's Economic Research Group believes there's only a 25% chance of a recession occurring within the next 12 months. But even if that downturn happens, I'd welcome it as an opportunity to buy more of my favorite stocks at discounted valuations.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends U.S. Bancorp. The Motley Fool has a disclosure policy.