U.S. stocks are doing something they haven’t done much this spring: going up.
The Dow Jones Industrial Average just logged its seventh daily gain in a nine-day stretch on Thursday. And the S&P 500 rose six of the past eight days, with the index up 5.4% since last week.
The latest surge comes after a rocky period for stocks in recent months. After hitting an all-time high in late April, the S&P 500 fell nearly 7% between May and early June.
So, what happened to turn things around?
Federal Reserve Chair Jerome Powell helped spark this rally last week when he signaled the central bank could cut interest rates to sustain the economic expansion. And, over the weekend, the White House announced that the U.S. and Mexico had reached an agreement on trade after President Donald Trump had threatened to impose a 5% tariff on all Mexican imports.
Wall Street traders, who have been betting on lower interest rates ahead and who don’t like trade wars, celebrated both developments.
Putting the ups and downs in context
To understand where the market is today, you need to appreciate where it’s been. Through April, the S&P 500 was up a whopping 17.5%—nearly double its average annual return of about 10%. Then came May, the benchmark’s worst month this year.
Often, stock market moves in either direction are exaggerated, like a rubber band that gets stretched too taut, Frank Cappelleri, executive director at Instinet, told Grow earlier this week. But that sets up the market to snap back, he adds.
The five-day streak through Monday was the fourth time the S&P 500 has jumped at least 5% since 2017, according to Cappelleri’s calculations. In each of those cases, the market slumped before it came roaring back.
“These type of moves don’t come out of nowhere—they come after pretty substantial preceding declines,” he says.
How to keep perspective
It can sometimes seem that, when the market moves violently, it’s going down. The truth is, the market can make sudden moves in both directions, and those moves are common. In fact, daily ups or down of at least 1% have happened for the S&P 500 about 20% of trading days since 2000, according to data compiled by Grow.
When investing for the long haul, you need to be prepared for ups and downs and resist the urge to pull money out of the market based on short-term choppiness.
The larger message is, don’t overreact to the news. Traders generally expect trade talks between the U.S. and China to continue moving the market in the month ahead. Don’t let it faze you. Keep saving and investing, so you don’t make a decision you’ll later regret. Because, as the past couple months have shown, even when it has declined, the market historically has always bounced back.
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June 13, 2019