Stocks Are On Sale
One can only gag at the ongoing silliness of those who
attempt to make sense of the daily ups and downs of the stock market and where
it might be headed. Although there has
been an increasing amount of attention being paid to interim volatility, that’s
what short-term movements are all about.
From Day One of my career, when the Dow was hovering around 600 (Yes,
only 600!) to where it is now, more than 50 times higher, there have always
been periods when the numbers move all over the place, yet the bottom line is
that the long-term trend is up.
Given the built-in bumpiness, it’s essential to be
aware that the prospective trajectory is one that’s likely over extended
periods. What happens today, tomorrow,
next week, next month or next year is anybody’s guess. And guess is the correct word. No one knows and anyone who claims to know is
a charlatan.
Investors continue to obsess about the market pullback
of the past year as if this kind of thing is unusual. Temporarily painful, but most certainly not unusual.
Better to view current stock levels as better prices
than were available a couple of years ago.
If you thought stocks were interesting in late 2021, one would think
that today’s lower prices would make them more appealing. Yet, despite the fact that demand for most
things tends to increase when prices are lower, people’s reactions to reduced
stock prices are exactly the opposite.
If you have doubts about today’s values and worry that
things will get even worse, I suggest to you that the Dow Jones average will
hit 50,000 before it hits zero. Indeed,
it’s a bet I’ll happily take since the odds of a plunge to zero are 0 in 1 Googol. (For those who aren’t familiar with that
number, it’s 1 followed by 100 zeroes.) Ain’t
gonna happen.
The last big market drop was back in 2008-09, at the back
end of a market decade that saw essentially no upward progress. Not surprisingly, the next 10 years saw
average annual gains well into double digits.
Given that performance, it seems reasonable to expect a resumption of progress
ahead.
When will that happen?
Can’t say, but a moderating pace on the part of the Fed would help both
stocks and bonds. If allowed to
speculate, I’d look for stocks to be higher a year from now, but that’s based
on nothing more than a gut reaction. Three
to five years from now, however, it would be reasonable to look for solid gains
across the board.
N. Russell Wayne, CFPÒ
Any questions? Please contact me at nrwayne@soundasset.com
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