This week marks 11 years since the bottom of the market on March 9, 2009. The timing of last week's extreme market volatility was perfect for us to reflect on where we were, where we are, and where we will likely be heading.
Prior to the great recession and subsequent market crash in 2008 the Dow Jones Industrial Average had reached a peak of 14,164 on Oct 9, 2007. By the time the market reversed course on March, 9 2009, the Dow had fallen all the way down to 6,547. At this time, none of the news regarding the markets was positive. Investors feared that the market would “fall to 0” and were reluctant to invest in equities. I frequently heard “of course it did, we were at a record high!” “The market should have never gotten that high in the first place.”
The reality however is that the markets are frequently at record highs. Why? Because while the markets go up and down, they have always trended higher for the last 200+ years. If they trend higher over time, we would expect to be at or near a record high more often than not.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Earlier this month the Dow hit an all-time high of 29,551 on Feb 12 before falling to 24,811 on Feb. 28. Now let's use that as a learning tool. We went from a record of 14,164 down to 6,547 and back up to 29,551. And to think people thought the market was too high at 14,000. Since that previous high, the Dow more than doubled in the following 11 years.
This gives us a great sense of perspective. Many people thought we would never see 14,000 again, and in a little over a decade, we are twice that high.
So, what can this tell us about what to expect going forward? First, markets over longer time periods will trend higher regardless of what is happening on any given day, week or year. We have had only 10 instances of 3% back-to-back weekly declines like we had last week since 1950. While that is significant, where were the markets one year after each of those occurrences? Nine of the 10 times that has happened, the S&P 500 was up between 6.2% and 45%, with an average return of 22.8% a year later!
Declines like these are to be expected and are a normal part of market cycles. Since the current record bull market, we have had seven corrections, which is defined as a 10% drop or more. That means that we’ve had six other drops like last week, just over a longer period of time.
So, what does all of this mean for you and your portfolio?
- First, if you are more than seven-10 years from retirement, you may not need to do anything, but you should still review your portfolio.
- If you are in or near retirement, now is a great time to review your portfolio and its exposure to risk. Consider rebalancing it to a more conservative allocation if you are unable to tolerate losses.
On a non-investment note, now is a great time to consider refinancing your mortgage as rates have come back down to near-record lows. We will likely not see rates this low again in our lifetimes, so I suggest you check to see if that would benefit you.
I hope this helps to keep things in perspective and to realize we have been here before, and it is perfectly normal so don't panic.
Sources: BTN Research. The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy. 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. 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 adviser with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS.
-
Why United Airlines Stock Is Flying Higher After EarningsUnited Airlines beat expectations for the first quarter and its stock is by soaring. Here's what you need to know.
-
Super Micro Computer: Why This Hot Stock Could Hit $1,500Super Micro Computer's long-term AI revenue potential is underappreciated, Loop Capital says. Here's what you need to know.
-
Charitable Remainder Trust: The Stretch IRA AlternativeThe SECURE Act killed the stretch IRA, but a properly constructed charitable remainder trust can deliver similar benefits, with some caveats.
-
Three Ways to Take Control of Your Money During Financial Literacy MonthBudgeting, building an emergency fund and taking advantage of a multitude of workplace benefits can get you on track and keep you there.
-
Stock Market Today: Stocks Stabilize After Powell's Rate-Cut WarningThe main indexes temporarily tumbled after Fed Chair Powell said interest rates could stay higher for longer.
-
How Did O.J. Simpson Avoid Paying the Brown and Goldman Families?And now that he’s died, will the families of Nicole Brown Simpson and Ron Goldman be able to collect on the 1997 civil judgment?
-
What Not to Do if an Employee or Loved One Is KidnappedBusinesses need to have a crisis plan in place so that everyone knows what to do and how to do it. Sometimes, calling the authorities isn’t recommended.
-
Why You Shouldn’t Let High Interest Rates Seduce YouWhile increased interest rates are improving the returns on high-yield savings accounts, that may not be an effective place to park your money for the long term.
-
Need to Build an Emergency Fund? Seven Steps to Get ThereHaving a safety net can mean peace of mind on top of being able to maintain your lifestyle if a financial emergency strikes.
-
Which Type of Life Insurance Is Right for You?Life insurance isn’t a one-size-fits-all option. Here are the differences between term life, whole life and indexed universal life insurance.
