The last year has been tough for nearly everyone, with inflation still higher than average and the threat of a recession looming. While it's still uncertain when or if a recession may begin, it's looking more likely that we'll face a downturn sometime this year. Officials at the Federal Open Market Committee recently predicted a "mild recession" for 2023, due in part to volatility within the banking industry.
If a downturn is on the horizon, the stock market could have further to fall. But it's not all bad news. Regardless of what the rest of the year has in store, there are three great reasons to be optimistic about the stock market right now.
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1. The market is often forward-looking
In general, the stock market tends to feel the effects of economic uncertainty before the economy itself. When investors start to worry about a recession, for example, stock prices will generally fall long before the recession begins.
We've seen this play out over the past year, as the S&P 500, Nasdaq, and Dow Jones Industrial Average have all dipped into bear market territory. The silver lining, though, is that the same concept also works in reverse, and the market almost always rebounds ahead of the economy.
In all but one recession over the past 50 years, the S&P 500 began its recovery before the economy bottomed out. If we do face a recession in the coming months, then, there's a good chance the next bull market will begin before the economy regains its strength.
2. Downturns can be smart buying opportunities
When the future is uncertain, investing more in the stock market may be the last thing on your mind. After all, if stock prices fall further, it may feel like you're throwing your money away by investing now.
But because the next bull market will likely begin when the economy is at its lowest, it's wise to continue investing throughout the downturns. If you wait too long to invest, you may miss the early stages of the potentially lucrative recovery period.
For example, during the Great Recession, the S&P 500 reached its lowest point in March 2009. But the recession itself didn't officially end until June of that year. During those months in between, the S&P 500 soared by nearly 40%.
It's tempting to wait to invest until the economy looks more promising. But if you want to maximize your earnings and take full advantage of the next bull market, now is a fantastic buying opportunity.
3. The right stocks can recover from any recession
Recessions can be effective tests for companies. Shaky stocks may struggle during a downturn. But healthy businesses with solid underlying fundamentals -- such as strong financials, a competent leadership team, and a competitive advantage -- are far more likely to pull through.
It's true that even the strongest of stocks may see their prices plummet during periods of volatility. But as long as the fundamentals of these stocks are strong and they have the potential for long-term growth, you can rest easier knowing they're likely to rebound.
The best thing you can do right now, then, is to ensure your portfolio is filled with these types of stocks. If you can swing it, you may even choose to invest more while prices are still down. During the market's recovery, you could potentially see lucrative gains.
Times like these are tough for investors, so if you're feeling nervous about the market, that's OK. By keeping a long-term outlook and making the most of this buying opportunity, it will be easier to get through whatever the future holds.
