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The Importance of Staying Invested

The Importance of Staying Invested

August 03, 2023

Dear Clients & Friends,

Making economic forecasts and stock market predictions can be quite humbling.  It’s especially harsh when you expect stocks prices to go higher, but they go down instead.  However, the environment today is the exact opposite, nearly every Wall Street strategist came into the year predicting an economic downturn and stock market declines—which has not materialized in the slightest.  So far this year, the S&P 500 Index is up just over 20%, with the month of July posting another solid month of gains.  It appears the stock market is pricing in an increasingly optimistic outlook for economic growth and corporate profits, but the economy still faces challenges, so we shouldn’t be surprised if we see an economic contraction in the second half of the year after all and stocks back up from here—it’s entirely possible.  So why stay invested? 

First, it’s impossible to time the market.  We’ve seen this play out several times in just the past few years.  For example, not many strategists predicted the strong market rebound that occurred as we came out of lockdown in 2020, or that inflation would become the ongoing problem that we’re still dealing with today.  We saw it again this past spring – when professional portfolio managers and investors alike were broadly pessimistic about the stock market, particularly in the wake of several bank failures.  Yet, stocks have gone virtually straight up since.

Another reason to stay invested is recent and encouraging economic data, which supports higher stock prices as the odds that the U.S. economy achieves a soft landing have increased.  The U.S. economy grew 2.4% in the second quarter, a solid pace for a typical economic expansion these days.  The job market remains healthy with near record-low unemployment. A resilient economy has fueled better profits for corporate America than most expected, setting up a likely end to the ongoing earnings recession in the current quarter.

Third, lower inflation may continue to support stocks in the months ahead as the Federal Reserve (Fed) winds down its interest rate hiking campaign. The Fed’s preferred inflation measure (the core PCE deflator) dropped a half point in June to 4.1% and could potentially reach the mid-3s by year-end— not too far away from the central bank’s 2% target.

Fourth is historical comparisons.  Since 1950, stocks have gained an average of 40% one year following bear market lows. Nearly 10 months since our bear market low, our current bull market is up about 28% so far.  Keep in mind, once the S&P 500 has gained 20% off a bear market low (which it did June 8, 2023), the one-year average historical gain is 18.9%.  We’re also in the best year for stocks within the four-year presidential cycle. In other words, more gains, and record highs, in the coming year are reasonable to expect.

Finally, for those worried that gains in the broad market have been driven by only a handful of stocks, I’m happy to report that stock market leadership has started to broaden out.  This will likely be a necessary condition for the next leg of this bull market.  Furthermore, small cap stocks fared better than large caps in July – which is also a positive sign for the rally – and the average stock in the S&P 500 rose more than the index over the past two months – another very positive signal.

For those with cash on the sidelines, we would suggest dollar cost averaging into your long-term equity investments, this is the process of simply investing at regular intervals over a set period of time.  This can be a great approach to take emotions off the table.  They key is forming a sensible plan and sticking with it regardless of the market’s gyrations.  There will never be the “right” time to invest.  Over the course of my investing lifetime, I’ve learned the “right” time to buy is when you have the money, and the “right” time to sell is when you need the money—everything else is just market timing. 

Staying invested for the long haul is not always easy—the markets will certainly test your resolve when stock prices are dropping, but they will also test your resolve when stock prices are rising too.  It is the investors who are able to summon the virtues of faith, patience and discipline that will be rewarded with handsome returns in the end and will continue to move closer and closer to their most important goals.

As always, thank you for your continued trust and confidence.  Please contact us directly with any questions.


Important Information

Nick Enzweiler, CFP® is a registered representative with, and securities offered through LPL Financial.  Member FINRA/SIPC.  Investment advice offered through Mariner Independent Advisor Network, a registered investment advisor.  Mercer Partners Wealth Management and Mariner Independent Advisor Network are separate entities from LPL Financial.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

All data is provided as of August 1, 2023.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All index data from FactSet.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Past performance does not guarantee future results.

Asset allocation does not ensure a profit or protect against a loss.

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