First, my apologies to Shakespeare. But modifying one of his famous lines seems oh so appropriate given all the media hype over the stock market swoons here and abroad this summer. Will Greece will pull out of the Eurozone? Will Spain and Italy’s banks be able to survive even with EU bailout money? Are China and India’s economies growing more slowly than the experts predicted? Will the US federal deficit smother any chance at a long-term recovery? There is just no shortage of tasty bad news to serve up to a grumpy set of stock market investors.
But haven’t we seen this movie before, recently? The summer months have often been (but not always!) times of poor performance for the US stock market, for instance. We saw this in 2011, when the S&P 500 Index fell about 19% (remember when our country’s credit rating was cut?). We saw this in 2010, when the S&P 500 fell about 16% (remember the “flash crash?”). And let’s not talk at all about 2008….
In spite of these bad summer performances, the stock market often finished the year on a higher note. In 2011, the S&P 500 was up just over 2% (nothing great, but certainly a very nice recovery from that summer’s 19% dip). In 2010, the S&P 500 was up about 15% (a very good year, in light of that summer’s 16% drop).
So what will happen in 2012? How will the US stock market perform for the year? I predict we’ll continue to be fed plenty of bad news stories by the media. Bad news is what sells, by the way, right? You know the old joke about good news: a commercial airline flight landed in Chicago, and everyone exited the plane safely and made their connecting flights. I don’t think that’s the kind of story we hear on the six o’clock news—nothing sensational there. But if a plane crashes and people are killed in the accident, now that’s news. Sad but true what we want from our media.
I expect the same pattern will emerge this summer. Bad economic data will get all the press. Good economic data (and there is good news out there, every month, by the way) will get maybe a marginal mention in the media. What will the end result be for the year? No one knows with certainty, because no one can accurately predict the future.
What we can learn from history is that the summer months are good for the stock market some years, and bad for other years. In that regard, there’s nothing special about summer months. It’s the nature of the markets to go up and down over time. The good news is that the long-term trend of the stock market over the last few decades has been positive.
So what’s an investor to do this summer? Go attend a Shakespeare play, read a good book at the beach, go for a hike in the mountains—enjoy your summer. Don’t worry; be happy. Let the media worry itself to death over the markets and enjoy its own self-serving discontent.