The stock market ended last week slightly down, following a mix of economic reports with some coming in below expectations and others above. However, the way the market reacted was quite positive and it’s possible this year’s stock market decline has bottomed.
Last week felt like a pivotal one in which the stock market could have quickly dropped to new lows or rallied significantly. In fact, the market didn’t change much on a point basis from the beginning of the week to the end, but it’s intraday moves spoke volumes. The market moved modestly down Monday and Tuesday as most investors were cautiously waiting for Wednesday morning’s inflation report. This was fairly predictable price action because few investors want to invest heavily before a big economic report that may very well be disappointing. Indeed, the inflation report was disappointing and below expectations which led to a reasonably significant Wednesday morning sell off but was notably followed by a market rally for the remainder of the day. On Thursday there was another negative inflation report and corporate earnings which led, once again, to a morning sell off followed by a rally during the second half of the day. Friday saw a consumer sentiment report that was above expectation and positive corporate earnings which led to a strong end of the week rally.
The market seems to have priced in the current economic, geo-political, and pandemic problems that have been with us for the past year. This doesn’t mean these issues will be immediately resolved but it may mean the stock market has accepted them and is priced accordingly. A month ago we saw similar disappointing economic reports and the stock market took a nose dive, while this month we saw a combination of selling and buying with prices more stable.
Why does all of this make me want to buy right now? The bear market may have bottomed in mid-June and purchasing stocks that have dropped 20% - 30% is usually a very good buying opportunity. The market may still head lower but trying to buy stocks at the very bottom is a matter of luck and often leads to investors missing the whole opportunity. Remember, there isn't an all-clear signal that let’s an investor know when it’s the right time to buy. The best approach to invest new money during a bear market is to invest incrementally, based on time and price diversification. Also, investing in a globally diversified portfolio helps ensure you will benefit when the upswing occurs.
Photograph by: Kelly Sikkema on Unsplash
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