Okay, America, buckle up. You’re going to hear a lot of bad news over the next few months and a lot of good news… and that means stocks could be volatile.
I say good news because things are looking up on a number of fronts. An initial report on a vaccine for COVID shows 90% effectiveness, which is great.
Much remains to be done, of course, but we seem to be nearing a corner on the pandemic. Hopefully we will start to turn that corner before the infection rate soars over the winter, as public health officials fear.
And the unemployment problem is looking better, too. The latest numbers saw the national jobless rate fall to 6.9%.
That’s despite the fact that the labor participation rate went up slightly. Translation: More people looked for jobs and even more people found them, at least in the most recent round of data. The economy is trying to sputter back to life.
It would be easy, and wrong, to connect this kind of headline to the outcome of the U.S. elections, whatever direction the data moved. First of all, it’s backward-looking information. More importantly, it’s a fool’s game to assume that a recent positive trend will continue in the next month, never mind six months down the line.
As for the elections, yes, many are happy to see former Vice President Joe Biden called as the victor. And many others, including President Donald Trump himself, consider the outcome a fraud.
In time, the states will certify their counts. We will have a recount in Georgia, plus two Senate runoffs in January. The president’s lawyers will be busy in courts around the country trying to overturn the result.
Time will tell what the lawyers can accomplish, if anything. Courts usually move at a snail’s pace, though they may act more quickly due to public interest in this matter.
So, you can expect at least a few more bumpy headlines as the ultimate outcome is finally ironed out and enters the history books.
The unfortunate thing is that many investors look at political and economic disturbances as a sign that they should do something about their investments. Nothing could be further from the truth.
The late John Bogle, founder of Vanguard Group, summed up one of his most important investment insights this way: “Don’t do something, just stand there!” he often said.
Bogle lamented the sheer volume of pointless trading in the markets, trading which often accelerates during uncertain times.
“We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources,” Bogle said.
Yes, markets are volatile. If you look back at just this past year we saw stocks fall very sharply, the fastest decline in the global stock market since 1929.
Yet the market also recovered, and quickly. Stocks are now positive on the year-to-date and in line with a typical 12-month return for the S&P 500.
It’s impossible to say today that stocks will finish the year up, down or flat. Nevertheless, investors who held their ground through the summer did fine, while those who panicked as stocks fell and sold likely now regret their choices.
Regardless of the headlines, how you react to them is a major indicator of how you will do as an investor over long periods of time.
We’ll have more good news. And probably a few shocking twists. In a fraught political era, in the middle of a pandemic, there’s always the chance that bad news will outweigh the good at any given moment.
But remember, we’ve seen worse. Wars, depressions and even crazier political transitions. And somehow investors endure.