Since the start of 2014, the Standard and Poor’s 500 Index is up about 2%. Not bad, but when this proxy for the overall stock market has averaged a 21% growth rate per year over the last five years, a relatively flat stock market seems awfully boring.
I like flat markets. For one thing, they are better than rapidly declining markets. Secondly, plateaus like this give the market time to rest after a meteoric rise. It gives investors, big and small, time to evaluate if stocks are over-priced or under-priced in the current economic situation. Despite what the media analysts say about why the market went up or down on a particular day, what usually moves the market is whether an individual stock is perceived as cheap or expensive.
Flat markets don’t necessarily lead to rising markets, but the domestic economy is relatively healthy, and most economic indicators are positive. There are no looming reasons for a sharp drop in the stock market, but it has been over 20 months since the S+P has dropped more than 10%. This is a normal occurrence during a long-term positive stock market. Major declines are usually caused by major political events or unexpected economic jolts. Barring one of these events, I believe the stock market is positioned for cautious, sporadic long-term growth.
Most of my clients’ accounts are invested in well-diversified mutual funds. As a result, performance will generally be less than in the S+P during good times and not as poor during bad times.
You cannot invest in the above indexes and averages. Indexes are unmanaged groups of securities and are not directly available for investment. Past performance is no guarantee of future return. Investing involves risk, including loss of principal. Passive benchmarks are unmanaged groups of securities and are not directly available for investment.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or specific investment advice, nor should it be considered as a recommendation to purchase or sell a security.