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September 12, 2024 at 03:39 PM
What You Need to Know
- Volatility is back (and it's normal), but that doesn't mean a bear market is around the corner.
- By historical averages, the current bull market has not been running for very long.
- The coming rate-cutting cycle could buoy the stock market for months.
Since the bull market began its run after the pandemic, its resistance to contrary forces has been astonishing.
This congenitally strong bull, the first since World War II to develop amid a Federal Reserve rate-hiking cycle, has galloped unhindered by the influence of doubting Thomases fearing an economic crash landing.
Long overdue for a correction, this robust bovine seemed to defy its beastly mortality — until early August. Then, led by declines in tech stocks, the S&P 500 took its deepest dip since the fall of 2022. For clients unfamiliar with market history, this bull suddenly proved mortal.
Mortal but, as things have turned out, resilient. From its July peak to its trough the following month (after precipitous sessions Aug. 2 and Aug. 5), the S&P 500 fell nearly 10%. But by late August, the index had rebounded to within one percentage point of an all-time high. Though volatility has continued into September, the index remains less than 2% below that high-water mark.
Some clients, having mistaken this bull’s resilience for some kind of immortality, may be feeling a bit rattled. The herky-jerky line of indexes lately has caused some to see risk they didn’t before.
Here are some talking points to ease clients’ fears:
Pullbacks and corrections are a normal part of the market. The market pullback was long overdue, and if anything, the recent dips were good buying opportunities. Expecting market growth without pullbacks and corrections is like expecting your investments to grow in a diagonal line, as they fictitiously did for Bernie Madoff’s damaged investors.
In the real world, uninterrupted gains just don’t happen. The market is about average gains from moving three steps forward and one step back.
Volatility is a natural part of the market and shouldn’t be confused with risk because the two are very different. That’s the view of Warren Buffett, who regrets the way the two are conflated at business schools. The actual problem with volatility, he says, is that it can prompt investors to do “stupid things,” such as selling without a good reason.
