Ka-Ching Ka-Ching was the sound made by old-fashioned, mechanical cash registers before electronic terminals took over. These days, it’s a term used to refer to lots of money. For investors, the critical question is what lies ahead for the stock market, not in the next few weeks, but in the next few months or years. That depends on where the economy is headed. Over extended periods, the path is upward, though there is always slippage along the way, sometimes relatively minor and at other times quite nerve-wracking. The driving force behind the economy is consumer spending, which typically accounts for about 70% of the U.S. Gross Domestic Product. Consumer spending peaked at $13.4 trillion in the fourth quarter of 2019, plunged to $11.9 trillion two quarters later, then rebounded to $13.0 trillion in the most recent quarter. What lies ahead? A further rebound. During the closing months of 2020, consumers started to loosen their purse strings, but there’s a long way
Pullbacks “R” Us The long-term trend of the stock market is up. Period. To reinforce that statement, take a look at the closing levels of the Dow Jones Industrial Average over the last 100 years: The average annual rate of return over this period was 10.5%. That was before inflation, which averaged about 3.1% a year. The real return, net of inflation, was 7.4% a year. The advance has not been straight up. Quite the contrary. A study by JPMorgan (see below) found that although the market advanced in three out of four years, there was an average intra-year drop of 14.3% during the period measured (1980-2021). At current Dow levels, that would be a reduction of 4,500 points. Nearly half of the pullbacks were less than 10%; five were more than 30%. In all cases, stocks recovered and continued to climb. Over extended periods of time, equities have delivered the highest average annual rate of return of all asset classes. Along the way, however, there have been substan