The stock market has been on a roller coaster of ups and downs over the past few years. After surging by nearly 47% between October 2022 and March 2024, the S&P 500 has fallen by roughly 5% just in the last three weeks.
This sudden sell-off may be concerning to many investors, especially as some might still be concerned that a recession is looming later this year. It's uncertain whether the market will quickly rebound from this dip or stock prices will continue to drop, which can make it a daunting time to invest.
Fortunately, there's good news about the future of the stock market -- but there's also some bad news. Here's what you need to know.
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The bad news
The not-so-good news about the future of the stock market is that nobody knows what will happen in the coming weeks and months. The market will always be unpredictable to a degree in the short term, and trying to predict its performance could be costly.
For example, say that you're expecting stock prices to continue dropping, so you sell your investments now. But there's always a chance the market could quickly rebound, and you'll have missed out on those earnings. Also, if you decide to invest again later, you'll end up paying higher prices for the same stocks you just sold.
Nobody knows what will happen in the near term, so if you're waiting for the perfect moment to buy, you'll be waiting forever. But there's good news about the future, too, and the market is safer than it might seem right now.
The good news
The good news about the market is that over the long term, it's far more consistent and reliable. Despite all the recessions, crashes, bear markets, and corrections it's faced throughout history, the market has still managed to earn positive total returns over time.
Even over the last two decades, we've seen some of the worst downturns in history -- including the dot-com bubble burst, the Great Recession, the COVID-19 crash, and the most recent slump throughout 2022. Despite everything, though, the S&P 500 is still up by 241% since 2000.
No matter what kind of volatility the market is facing in the short term, given enough time, it's incredibly likely to recover.
For that reason, one of the safest moves you can make right now is to simply stay in the market and maintain a long-term outlook. Even if stock prices continue falling in the near future, chances are good the market will rebound eventually. By riding out the storm, you'll be well-positioned to take advantage of those gains.
One important caveat
Keeping a long-term outlook is critical to protecting your investments, but it's equally important to invest in the right places.
Shaky stocks may perform well when the market is thriving, but they may struggle to rebound from downturns. Healthy stocks, on the other hand, may take a hit when the market is volatile, but they're far more likely to recover and go on to see positive long-term returns.
The strongest stocks are from companies with healthy underlying fundamentals, such as a competent leadership team, strong financials, and a competitive advantage. By filling your portfolio with strong investments, you're far more likely to see consistent growth over the long haul.
The stock market has been shaky over the last few weeks, but there's still plenty of reason to be optimistic about the future. By investing in strong stocks and keeping a long-term outlook, you can rest easier knowing your portfolio is better protected -- no matter what happens with the market.
