Stock Market: A Time for Fortitude

The stock market continued to test investors’ confidence in February. With the Dow Jones Industrial Average (DJIA) declining to levels last seen in 1997, and concerns over the possible effectiveness of the Stimulus Act, both experts and individual investors were anxious for some –for any—positive news. No one has the answer to the all-important question —when will the market bottom out? However, timely assurances from Federal Reserve Chairman Bernanke that the administration will do whatever is necessary to fix the banking sector soothed the investment community and helped to bolster financial ETFs. Overseas, Bernanke’s remarks, which mentioned a possible recovery in 2010—predicated on the belief that the stimulus package will work—and his assurances that there is no plan to nationalize U.S. banks, helped lift international markets. Back home, despite earlier glimpses of optimism, the U S market continued its gyrations –a bounce-back followed by a retreat.

Though dips and dives like the ones experienced in late February offer scant reassurance to anyone, investment experts acknowledge that this a pattern familiar to past market cycles. The market routinely experiences a roller coaster ride on its way to the path to recovery. Bear markets like the current one frequently pull back following an initial rally as a result of overall uncertainty while market experts regroup and reassess the economic climate. Some analysts believe the markets may have pretty much bottomed out, others believe we may experience another low.

Conventional Wisdom
Weak, and sometimes contradictory, economic data have taken a toll on investor patience. Conventional wisdom suggests that if you believe that there will be a recovery (though no one knows exactly when), that it makes no sense at all to throw in the towel at this juncture. Money is made when investors buy into declines and sell during rallies. Times like this call for unemotional, logical decisions—easier said than done. Bear in mind, too, that investors who cash out during a market decline face the dilemma of when to buy back in. Rallies are often fast and unexpected, and few individual investors are speedy and lucky enough to capitalize on them.

Though reputable investment experts will not predict where the markets are headed in the short term, they remain convinced that a turnaround will come—just don’t ask them for a specific time frame. Perhaps amidst recent events –the return of liquidity in the financial sector, and the administration’s willingness to confront reality and contribute to developing solutions for the financial sector and the auto industry –are the seeds of the market recovery we all want.