Fisher Investments Editorial Staff
Investor Sentiment, Market Cycles

Trial by Volatility

By, 06/16/2009

Story Highlights:

  • It's been three months of basically nothing but up since early March for stocks, but bull markets won't let you have it this easy.
  • A pullback now, after advancing for weeks, wouldn't be surprising nor would it mean the longer recovery has been derailed.
  • It's to be expected some of the momentum off the bottom will slow or even reverse for short periods. That doesn't necessarily mean a slide back down to cycle lows.

_________________________________________________________________

Many investors have illusory visions of the stock market. They expect the market to clearly signal major transitions—from bull to bear, from bear to bull. Well, it's not that easy—only looks that way in hindsight. But it's good Zen and better market wisdom to realize "now" is the only time there is, and "now" is always to some degree uncertain. There's a price to pay for stocks' superior returns relative to other liquid asset classes—volatility.

It's been three months of basically nothing but up since early March. 12 out of 14 consecutive weeks of gains for the S&P 500. There's no consensus if this is a new bull (and there won't be any for some time), but whether it is or not, generally bull markets won't let you have it this easy. Investors' mettles will be tested time and again with pullbacks, "head fakes," and volatility up and down. Stocks never declare "all clear" or "get out now!" It's never a smooth ride. But again, higher volatility and risk are the price for stocks' rewards over the longer term.

After weeks of advancing, a stock market pullback now wouldn't be surprising nor derail recovery. Investors should fully expect market pauses and pullbacks and moments when bears declare they are right and the market will only head to lower lows. Before you fall for their growling and grumbling, remember no bull market is ever a straight shot up, or a bear an exact straight shot down. Larger trends show the market is full of ups and downs in either cycle.  

It's also important to remember bull markets' gains happen disproportionately in the beginning—as most folks wait in doubt on the sidelines—but this period isn't without turbulence. Following cycle lows, markets historically experience seemingly gravity defying surges up as some investors regain confidence to buy overly sold-off stocks at extremely depressed prices—even before improvement is widely apparent in economic data. It's to be expected at some juncture, some of this positive momentum will slow or even reverse for short periods. That doesn't necessarily mean a slide back down to cycle lows.

Investors can't have their heads in the clouds with unrealistic recovery expectations. At the same time, they can't wallow in the trenches waiting for an "all clear," lest the bull trample them.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Click here to rate this article:



*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Subscribe

Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.