Putting Markets in Perspective

Blue shading indicates recession in America.
Sources: Standard & Poor’s

“Fear has a greater grasp on human action than does the impressive weight of historical evidence.”

Jeremy Siegel, Professor of Finance at the Wharton School of the University of Pennsylvania, in Stocks for the Long Run

The 2000s have made it easy for even the most experienced investors to lose sight of their long-term goals. In less than a dozen years, we have experienced two bear markets, housing and financial crises, instability in the Eurozone, and a global economic slowdown. While it’s not uncommon for market volatility and economic uncertainty to undermine investors’ confidence, acting on emotion can be detrimental to your long-term financial health. When you’re tempted to alter your long-term financial plan in response to current events, it may help to re-examine current events in the context of past financial crises. The chart shows some of the events that have rocked markets during the past twenty five years. They include:

  • Black Monday stock market crash: On October 19, 1987, the market dropped by more than 20% in a single day. At the time, it was the largest one day percentage decline in stock jameshallison casino market history. Despite investor anxiety, the Standard & Poor’s 500 Index finished the year in positive territory and has made significant gains since.
  • Terrorist Attacks/Enron: In 2001, Enron declared bankruptcy as the American economy was struggling to recover from the September 11th attacks on the World Trade Center. The value of Enron shares fell from $90 to nothing, and investors wondered whether markets would ever regain lost value. They did.
  • Housing Crisis: In late 2006, the housing bubble burst. Home prices fell and foreclosures became common place. Lehman Brothers, then one of the largest investment banks in the United States, filed for bankruptcy in part because of its exposure to subprime loans and lower-rated mortgage-backed securities. Today, the housing market appears to be stabilizing and markets have begun to recover some of the value lost.

It will take time and political courage for the world to recover from the events of the past few years. Countries in the Eurozone may continue to falter, slower growth may persist in China, India, and Brazil, political indecision may slow growth in the United States if fiscal cliff issues are not addressed. Regardless, we remain optimistic about the potential for markets to perform over the longer-term and remain cognizant of the fact that uncertainty and volatility create opportunities for astute investors. We continue to believe that holding a well-allocated and diversified portfolio is a sound way to pursue long-term financial goals. Whether you’re planning for retirement, children’s education, or other goals, it’s essential to keep a long-term perspective. If you would like to discuss your financial plans or market opportunities, please give us a call.

Indices are unmanaged and you cannot invest directly in an index. The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock”s weight in the Index proportionate to its market value.

Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.