The last year and a half has been a rollercoaster of ups and downs for the stock market, and many investors are still feeling hesitant and confused about what the future might hold.
On the one hand, stock prices have been surging. The S&P 500 is up by roughly 27% from its lowest point in October 2022, and the Nasdaq has soared by a whopping 35% in that time. This has led many experts to claim that we’re in a new bull market, which means fresh optimism and rising prices.
At the same time, though, a recession isn’t off the table. While some experts believe the chances of a recession are lower now than they were a year ago, others say it’s still around the corner.
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In fact, the Conference Board’s Leading Economic Index, which tracks U.S. business cycles and economic activity, declined for the 15th straight month in June. The indicator also declined more than economists expected in June, and analysts at the Conference Board are still predicting a recession from the third quarter of 2023 through the first quarter of 2024.
Given all of this conflicting information, just how safe is the stock market right now? And should you really be investing if a recession might still be coming? The answer is simpler than you might think.
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Is the stock market safe right now?
While it’s easy to get caught up in the market’s short-term outlook, it’s not nearly as important as its long-term potential.
The market will always experience at least some degree of volatility over weeks and months — even during strong economic times. But over decades, it’s consistently earned positive total returns despite facing significant downturns.
If you focus too much on waiting until the perfect moment to invest, you risk missing out on valuable time to let your money grow. And that can potentially hurt your earnings more than investing at the “wrong” time.
For example, say you had invested in an S&P 500 index fund in January 2009 — just two months before the market bottomed out amid the Great Recession. At the time, that may have seemed like the worst possible time to buy, as your investments would have almost immediately plummeted in value.
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Within just one year, however, you’d still have earned returns of more than 23%. If you had waited until, say, October to invest — when the market was well into its recovery — you’d only have earned returns of around 8% by January 2010.
Should you invest right now?
There’s still a chance a recession may be looming, and if that’s the case, stock prices could fall. But over the next several years (and certainly in the coming decades), it’s extremely likely the market will earn positive total returns.
If you’re a long-term investor, it doesn’t matter too much when you invest — and the data proves it.
Experts at Crestmont Research analyzed the S&P 500’s rolling total returns over the past century to determine which 20-year periods saw positive gains. They found that in all 104 periods (from 1919 to 2022), the S&P 500 earned positive 20-year total returns.
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In other words, if you had invested in an S&P 500 index fund at any point and simply held it for 20 years, you’d have made money — regardless of how volatile the market was in that time.
The last two decades have been particularly turbulent, with the market facing the dot-com bubble burst of the early 2000s, the Great Recession, the COVID-19 crash, the most recent slump, and countless smaller corrections along the way.
However, the S&P 500 is still up by nearly 209% since 2000. Even if you hadn’t bought at the best possible moment, investing at nearly any point in the last two decades would have still likely resulted in positive total returns by today.
More important than investing at the right time is staying in the market for the long haul — and investing in the right places. If we face a recession, not all stocks will survive. But the stocks from healthy companies with solid underlying business fundamentals have the best chance.
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By filling your portfolio with quality long-term stocks and sticking it out through the rough patches, you’re far more likely to make money — no matter what happens with the market in the near term.
