When you're climbing a mountain and feel discouraged by the boulders in the path, sometimes it helps to look back at where you started. By doing so, you'll probably realize that you've made more progress than you thought. And the longer perspective can improve your spirits as well as increase your confidence and persistence.
We think that's the case for the stock market, too. Today's stock market upswing started three years ago on March 9, 2009. Since then, the Dow has climbed almost 6,300 points, and the S&P 500 is up 102%. There's no doubt it's been a long and winding path.
What's Changed?
There have been many improvements over the past three years. Some of the most important include:
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Job growth, not job losses -- The economy lost more than 1.5 million jobs in the first two months of 2009. In contrast, more than 500,000 jobs were added in the first two months of 2012. The private sector has added jobs each month for the past two years. |
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Sluggish economic growth, not recession -- Gross domestic product (GDP), which measures the overall output of the economy, reached its lowest point in the second quarter of 2009. While it may not have seemed like much of a recovery, the economy is producing more today than before the "Great Recession" started. |
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Healthy earnings growth, not write-offs -- Corporate profits dropped severely during the recession but have rebounded strongly since then. Companies in the S&P 500 have reported eight consecutive quarters of double-digit earnings growth. |
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Improving attitudes, not pessimism -- Consumers and companies remain cautious but have steadily reported they are more optimistic, signaling greater confidence.
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Can the Market Keep Rising?
Despite many worries and periodic pullbacks, the stock market has made an impressive gain over the past three years. In our view, the positive fundamentals and improving attitudes support continued gains. But some are warning that the next pullback could be on the horizon. That's an easy prediction, since stocks have dropped by 5% or more about three times a year since 1900.*
Stocks don't move straight up -- their progress is bumpy, and no one accurately predicts those bumps along the way. Long-term investors know that today's concerns, including rising gas prices, the economy, European debt and this fall's elections, could again trigger market volatility. They also know that staying invested during those times in a diversified portfolio of quality investments has helped them weather past market volatility.
Climbing a mountain isn't easy, and neither is maintaining a long-term approach to investing. However, we believe those who maintain the proper discipline and focus can keep up the climb, working toward their long-term goals.
