A LOT has happened since February/March, 2020, but let’s pause for a moment and try to remember what that moment was like in the U.S. That time was characterized by uncertainty—a looming pandemic, doubt about employment and the job market, and fear of what this virus might do to the economy. So, people reacted as we so often do—with knee-jerk, fight-or-flight reactions. At the first sign of a recession, investors began panic-selling and the stock market went on a downward slide. The Dow Jones Industrial Average dropped about 8,000 points between mid-February and mid-March. On March 12, the S&P 500 fell 9.5%, which was its steepest one-day loss since the year 1987.

And then…It recovered.

Toward the end of March, the market began making gains again and it has hardly slowed down since. Yes, there have been a few bumps in the road—a handful of down days—but overall, the news on Wall Street has been positive. As of late November, the Dow has not only recovered from the February/March recession, it reached a new record high of over 30,045 on the 24th. Similarly, the S&P 500 shot past where it had been this past spring and continues to climb steadily upward.

This may seem remarkable to some, but many investors (myself, included) are not terribly surprised.

We have seen our fair share of recessions and bear markets, and they all, eventually, right themselves. We had no reason to believe that this year’s downward slide would be any different. Financial reporter Paul R. La Monica sums up this inevitable dip in the market nicely, saying:

“According to data from Hartford Funds, anyone that has the wherewithal to keep money in the market for 50 years (i.e. from your first job all the way through your golden years) can expect to see about 14 bear markets over that period.”

The trick (and it’s not really a trick at all, but a state of mind) is to stay patient. Don’t jump at the first sign of trouble. Oftentimes, it simply doesn’t pay. Instead, ride out the low points and take your money out on your own terms, not according to the market’s whims.

If, for example, you had panic-sold your S&P 500 shares mid-February, when shares were valued at about 3,300, and never bought back in, you would currently be missing out on substantial growth, since shares are currently valued at 3,613. In other words, an S&P 500 share today is worth about 9% more than a share in mid-February.

Keep in mind, the stock market does not always reflect the economy. Even if unemployment continues to rise, consumer spending might remain steady and corporations might continue to flourish. That said, it is possible we’ll see another stock market decline before the COVID pandemic is solved and life returns to normal. If that’s the case, hold on tight! Keep in mind the lessons we learned from the first downward slide and do NOT panic-sell.

Keep calm. We’re all in this together and we will make it through.

Leave a Reply