Last week we had our 28th correction of 5% or more since the March 2009 low. During that time, the market has returned 473%. Short term the market outlooks have been largely unpredictable but long term it has been favorable. The market has since recovered and hit new all-time highs this week (as of 3/11) but there will be more corrections in the future.
Above is a great chart from @CharlieBilello that shows all the different periods in recent years when the market declined 5% or more and what caused the short-term market concerns. You can almost always find a reason to sell when looking at the market from a short-term perspective. There will never be a period when someone will tell you the coast is clear and it’s time to go all in on your investments.
Even if you invested at the peak of the market, before the Dot Com crash in 2000, you would still be up 153% today. You would have endured the Dot-Com crash, Global Financial Crisis, Coronavirus crash, and all the smaller corrections in between. Those periods are difficult to invest through but it does make it easier when you have a plan in place.
The most recent 5% pullback in the market was from concerns of inflation and rising rates in the 10-year yield.
I do think consumer prices will rise but that is not necessarily bad for our economy. Last year the personal savings rate hit a 50-year high. With all the pent-up demand, I feel that it is inevitable that we will have a spending boom as we open back up. The Federal Reserve has been targeting 2% inflation and there is a good chance we reach that in 2021.
The rise in the 10-year yield also spooked to market. Wall Street uses the yields as a benchmark for types of debt, including corporate bonds, mortgages, auto loans, and more. The recent rise in yield hit growth and momentum stocks the hardest.
Corrections are part of the market and there will be more in the future. Managing your risk is one the reasons you work with a financial advisor who can help you navigate market volatility. Making rash decisions has never been a good idea when it comes to investments. Bearing the risk of short-term loss is the price investors pay for long term success.
Data from YCharts
-Market up 153% from peak before Dot com crash (3/24/00- 3/9/21)
-Market up 473% from 3/09/09 low to 3/9/2021.
J.P. Morgan’s Guide to Retirement: Savings rate hit 50 year high
Market refers to the S&P 500 index
Inflation is the general increase in price and fall in the purchasing value of money
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial does not provide research on individual equities. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy ensures success or protects against loss. This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.