Can you believe it's been nearly eight years and seven months since the U.S. stock market firmly put in a bottom, and more than eight years since the Great Recession ended? Though economic downturns and stock market corrections are a natural part of the economic cycle -- we've had 35 corrections in the S&P 500 (SNPINDEX:^SPX) of 10% or more, when rounded to the nearest whole number, since 1950 -- this bull market, and the current U.S. economy, have been unstoppable.
However, the idea hasn't been lost on Americans that economic cycles, including growth downturns and stock market corrections, are normal.
America's biggest economic concern
With this in mind, Bankrate questioned just over 1,000 adults in its most recent monthly Financial Security Index report about what they believed to be the greatest threat to the American economy over the next six months. Overall, 8% suggested that a decline in the stock market could threaten the U.S. economy, while terrorism and rising interest rates garnered 10% of the vote each. Of course, none of these responses was anywhere near the top of the list.
You might be under the impression that the ongoing escalation between North Korea and the U.S. marked the biggest risk to the U.S. economy, and nearly a quarter of (24%) of respondents suggested so. But even the threat of war with North Korea isn't the top concern of Americans. Instead, laughably, the political environment and gridlock in Washington, D.C., took the top honor, with 36% of the vote. That's right folks -- the American public is more concerned with Congress's inability to get anything done, and the instability and uncertainty created by President Trump, than it is by threats and/or escalation from North Korea.
Should this really surprise anyone? Probably not. Back in 2013, Public Policy Polling, in a clear act of trolling the public's distaste for its representatives on Capitol Hill, showed in a poll that Congress was less popular than lice, used car salesmen, and even a root canal. The partisanship that exists in Congress has produced next to nothing in terms of major legislation over the past five years, and the American public is clearly concerned that a one-party approach to tax and/or healthcare reform, or even ongoing stalemates, which occurred with the repeal and replace efforts for the Affordable Care Act this year, could lead the U.S. economy down the wrong path.
Three things you should realize about the U.S. economy and stocks
Though there's always a risk that the U.S. stock market or economy could go tumbling off a cliff, there are three key things that you should be aware of.
1. We rarely know ahead of time what the biggest threat is to the U.S. economy
To begin with, it's important to recognize that while there's a seemingly endless list of factors that could tank the stock market and economy, when corrections or recessions do occur, rarely have pundits been in consensus ahead of time as to the reason behind the downturn.
For instance, few people in 2007 were sounding the alarm to subprime loans, and in 2000, most analysts presumed that nothing could stop the internet. In each and every bull market the economy appears unstoppable until it isn't anymore, and the reason for its derailing is often something that few people saw coming. In other words, we have to come to the realization that economic cycles are unstoppable, and that at some point in the next few months or years we're likely to see U.S. economic growth slow and the U.S. stock market fade a bit.
2. Timing economic downturns is a foolish endeavor
Secondly, you need to be well aware that trying to time when this downturn will occur is a foolish (with a small 'f') endeavor. Aside from establishing that there's almost no way of knowing what factor will send the U.S. economy or stock market into a correction or recession, trying to establish the timing of such a move with any accuracy simply isn't repeatable over long periods of time.
Plus, as research from J.P. Morgan Asset Management has previously shown, six of the S&P 500's top-performing days over the 20-year period between Jan. 3, 1995 and Dec. 31, 2014 came within two weeks of its 10 worst days over this same 20-year period. Trying to jump in and out of the market at just the right time is nothing more than a roll of the dice.
3. High-quality companies and the stock market tend to increase in value over time
Finally, keep at the forefront of your mind that the U.S. economy and stock market tend to grow in value over time. Despite those aforementioned 35 stock market corrections over the past 67 years in the S&P 500, bull market rallies have completely erased these moves lower within a matter of weeks, months, or in rarer cases years. In essence, if you stick with high-quality stocks and trust in the U.S. economy over long periods of time, you should be handsomely rewarded.
One of the smartest things you can do to minimize the sting felt when stock markets and the U.S. economy corrects is to make regular investments, regardless of how well or poor the economy or stock market is performing. Buying stocks on a regular basis should help average you into a reasonably low cost basis over the long run. Since the stock market has historically returned 7% annually, inclusive of dividend reinvestment, you should be able to generate a healthy return over the long term.
Regardless of what happens to the stock market or U.S. economy next, investors should be on solid footing if they stick to their game plan and long-term mindset.