The Market’s Doing Great and That Has Investors on Edge

Investing, Investing Strategy, Investments
The Market's Doing Great

Here’s something new: For the first time in several years, the stock market has yet to succumb to a summertime slump.

The list of culprits for past market meltdowns in the June-through-August period resembles a well-traveled passport: Britain’s surprise Brexit vote in 2016, China in 2015, Europe in 2014 and the U.S. and its Federal Reserve in 2013.

Summer is winding down, with no telltale signs of a sell-off in sight, but the passage of time has some investors on edge. The Standard & Poor’s 500 index has gone more than 270 days without a slump of at least 5%, which hasn’t happened since 1996. The livin’ has been pretty easy lately on Wall Street, with stock gauges hitting record highs and market volatility near an all-time low.

Will that last? Here’s what investors are watching in the month ahead.

Is the end nigh?

If you’re familiar with the late comedian Rodney Dangerfield, you know his famous catchphrase: “I don’t get no respect!”

Likewise, the stock market doesn’t seem to get much respect lately. Buoyed by solid macroeconomic reports and corporate earnings, the S&P 500 has marched higher every month but one — it fell a paltry 0.04% in March — for a year-to-date rally of more than 10%. And yet, near-daily predictions call for an imminent sell-off.

What gives? It’s mostly mental, as investors conditioned to the normal ups and downs of the market are instead watching the days pile up since the last slump. “Everybody’s looking for a pullback and wondering when it’s going to happen,” says Don Riley, chief investment officer at Wiley Group, a wealth advisory firm.

Unexpected news can always jolt markets — meaning now really is no different — and whatever finally rouses U.S. stocks from their eerie calm may still be 100-plus days away, Riley says. All this second-guessing is just a distraction to a market that’s still in a “sweet spot,” he adds.

The Federal Reserve has raised interest rates three times in the past 12 months without spooking investors. Strength in the labor market hasn’t caused inflation, and the economy is on solid footing with gross domestic product rising at a 2.6% annual rate in the second quarter. “That all plays into a positive environment for equities ahead,” Riley says.

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Even so, the reason there’s been so little volatility in stock prices — and hence all the prognosticating — is that no obvious culprits are looming, he adds.

Except maybe Washington

No matter what he tweets, President Donald Trump doesn’t get full credit for the postelection surge in stock prices. Could he be to blame for some eventual sell-off? Possibly.

The Republican majority in Congress promised to repeal and replace the Affordable Care Act, an effort that hasn’t gone as planned — and the party’s failure to pass health care reform could portend trouble, says Joe Heider, founder and president of Cirrus Wealth Management.

“What does it mean for the Republican agenda of tax reform, infrastructure and deregulation?” Heider asks. Optimism about Trump’s business-friendly campaign promises contributed to the postelection rally, but that’s waning now in the absence of major legislative accomplishments. “We’re far enough into this administration at this point that if things don’t move forward, it could be a catalyst for a market pullback,” he says.

August typically is a sleepy month in Washington, but Senate Majority Leader Mitch McConnell, R-Ky., delayed the start of the five-week recess, which means the Senate will be in session for half the month.

While a variety of polls show Americans disapprove of Trump’s job performance and how Congress is handling its duties, that hasn’t affected market sentiment — at least yet. Expectations that stock prices will increase in the next six months rose to a nearly three-month high in mid-July, according to a weekly sentiment survey by the American Association of Individual Investors.

“Investors seem to be very comfortable right now,” Heider says. “Most people are complacent to even greedy.”

August and everything after

This year’s stock market hasn’t played by the rules many investors know. The S&P 500 has inched higher but with little fanfare, rising or falling in excess of 1% on only four days so far. That tracks far below the annual average of 52 days with moves of such magnitude over 50-plus years, according to data compiled by Jeffrey Hirsch, editor-in-chief of Stock Trader’s Almanac.

If the market is throwing out the playbook, should you? No.

Whether a long-expected market sell-off comes in August or several months down the road, don’t let it shake your investment strategy. Market volatility is normal, even if this year has been strange, and you’re bound to experience bouts of it over your lifetime.

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“We tell clients not to invest based on a view that’s in the rearview mirror,” Heider says.

Rather than trying to time or predict the market, stay focused on your goals, Riley says. If you have money to invest, spread out your purchases using a dollar-cost averaging strategy. Or, check how well diversified your portfolio is and make tweaks — not overhauls — as necessary, Heider advises.

Finally, if you can’t bear to sit still while the market isn’t moving, the summertime slumber may afford an unexpected perk: Phones aren’t ringing off the hook from distressed clients, Riley says. If you work with a financial advisor, he or she may have some extra time for big-picture conversations about your investments, retirement and overall financial health.

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Anna-Louise Jackson is a staff writer at NerdWallet, a personal finance website. Email: ajackson@nerdwallet.com. Twitter: @aljax7. Staff writer James F. Royal, Ph.D. also contributed to this report. Email: jroyal@nerdwallet.com Twitter: @JimRoyalPhD.