Here in the summer months, markets have reacted negatively to the global increase in cases of the Delta variant and the challenges in getting larger swaths of the US population vaccinated against the virus. The market sold off swiftly last week only to recover the losses over the last few days. Newspaper headlines couldn’t resist asking if this is the top in the market or whether we might experience another panic like March of 2020. As Old Turkey, the wise investor immortalized in Edwin LeFevre’s “Reminiscenes of a Stock Operator” would say “you know, it’s a bull market!”
Markets in a bull phase tend to ignore the negative news and climb the proverbial “wall of worry.” There are always things to be concerned about, but how the market reacts to them is in the end what matters. It’s easy to get distracted by the movements of a few days only to lose sight of the big picture. Similar to the bull phase, markets in a bear phase tend to react negatively to each piece of news exacerbating their downward trend. When this bull market finally ends, we will only know in hindsight as any attempt to predict the future is futile.
It can be helpful to step back and see the long term trend in a chart. Depending on how you define uptrend or downtrend (bull or bear market), arguably the S&P 500 has experienced only 6 sustained downtrends (red highlights in chart below) in the last 25 years. Most of the time the market is in a defined uptrend and the day to day volatility is noise as seen below.
S&P 500 Index (SPX) – 25 year Monthly Chart
While the day to day movements in markets can be nerve racking, most of the time it is noise. Bull markets attempt to buck you off while your goal is to ride the trend until the end. It can be dangerous to focus on the minutiae at the expense of the big picture and as Old Turkey once said, “you know, it’s a bull market!”