The answer is yes. It will go up or down, and tomorrow night we can tell you which.
As of August 17, the Dow had risen 8 of the last 11 days. Both the Dow and S&P 500 were up 6 weeks in a row, and the NASDAQ 5 weeks in a row. What do these trends mean for the future direction of stocks?
Patient index investors have been rewarded this year. The Dow is up 8.7 percent for the year and the S&P is up 12.7 percent. Both are near their year-to-date highs.
These are encouraging data to be sure, but as the disclaimer goes: Past performance is no guarantee of future results. Six up weeks in a row tells us nothing about what will happen in the seventh week, and even less about what will happen on any given day.
The Morningstar exhibit below is a classic one I like to share every few years.
As the title describes, even rising markets have many down days. While the market (as represented by the S&P 500) increased in value by about 400 percent between 1989 and 2008, the index was down on 46 percent of the days in that period. Monthly and quarterly results are somewhat better, falling 37 and 30 percent of the time, respectively. The market was down in 5 of the 20 years, or 25 percent.
Up and down and all around
Rising markets do not move in straight lines. The path up typically includes many significant dips, and certainly many down days.
This daily data — 46 steps backward for every 54 forward, on average — points to the difficulty of trying to time the market. We feel it is not practical or cost-effective to try to jump in and out of the S&P or any other investment hoping to catch upswings and miss downturns. Instead we advocate buying and holding for the long term a diversified portfolio of low expense index ETFs that represent a wide spectrum of asset classes.
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