After a brief market recovery in July, stocks lost ground again starting in August. Markets are likely to remain volatile as the Federal Reserve continues to do so. CNBC's Jim Cramer warned investors Friday that the stock market is unlikely to recover any time soon. Three days later, the index fell again by more than 1000 points, demonstrating the fragility of stock market recoveries in the current environment.
Even with the S&P 500 in a bear market, Hodge's concern is that a major slowdown in the pace of economic growth has not yet been fully discounted in stocks, and there will be more volatility as that happens. Both the high-tech NASDAQ composite index (which includes about 3,000 common shares) and the Russell 2000 small-cap stock index fell to a bearish market position earlier in the year. Given the presence of these safety valves, history suggests that the current crisis of confidence in the markets could be much closer to its end than to its beginning. An additional concern going forward will be market fundamentals, such as corporate revenues and profits.
To gain insight into the market outlook, chief investment officer Tom Stevenson will share his thoughts on the next quarter in the latest edition of Investment Insights. The September market performance was a wake-up call for many investors, especially when the August Consumer Price Index (CPI) report showed that inflation had not reached its peak. After briefly exiting “bear market territory”, the S&P 500 and NASDAQ Composite indices fell back to that level and reached their lowest points of the year in September. While the Federal Reserve remains committed to curbing inflation, that task is still incomplete and the midterm elections are fast approaching, and Sheldon believes they will also have an impact on financial markets in October.
In general, stock markets are usually quick to take into account economic and political events of the day, but doubts continue to linger for some investors. Big Money respondents are relatively negative about the short-term trajectory of financial markets, but optimistic about long-term opportunities, given the most attractive entry points in years for both stocks and bonds. At this point, investors have become accustomed to temporary bear market rebounds that are followed by even more severe losses. Time and again throughout history, a foolproof approach to saving regularly during difficult market periods has rewarded investors in the end, sometimes to a greater extent than if markets had risen broadly.
The most notable factor behind this significant decline in stock prices was the bursting of a stock market “bubble” in technology stock prices, in particular for some early-stage dotcom companies, when investors stopped paying higher prices for companies with little or no profit. In early 2000, an extended bear market began, which persisted until early 2003, following a long-lasting bull market.