Ignore the Rallies, Think Long Term

Ignore the Rallies, Think Long Term

Another month, another rally

The 2023 headlines would have you believe we are ‘this’ close to returning to a decades long bull market.

February: Stocks surge to cap first-quarter rally: Stock market news today1

March: 2023 will be a bumper year for stocks. Here’s how to play the rally2

April: The Stock Market’s Rally Is Being Driven by a Few Big Stocks3

May: Stock Market Rally Hits 2023 Highs As Big Techs Lead4

And this month is no different:

June: Dow ends 700 points higher as stock-market rally puts S&P 500 on verge of bear-market exit5

As of now, the S&P 500 Index is up almost 10 per cent year-to-date. It is hovering near its key 4200 level. Optimism over a US debt-ceiling resolution and excitement over artificial intelligence prevailed over stalemate and interest rate concerns. In response, stocks broke out once again.

Getting caught up in the excitement of stock rallies is easy. While stock prices may soar in the short run, history has shown us that what goes up must come down. Each collapsing rally can be seen in the chart below.

Dow Jones Industrial Average 6

To protect your financial future, advisors recommend adopting a long-term point of view.

What the Banks Are Saying

Across the board, stocks are viewed as overvalued. Record inflation and punishing interest rates have left them like empty shells. Without support, they are poised to fall. So much so that JP Morgan analysts are saying put more money in gold and less into stocks.

Marko Kolanovic is the Chief Global Markets Strategist at JP Morgan. He said, “we maintain that the risk-reward for equities is poor given elevated risk of recession, stretched valuations, high rates and tightening liquidity.” Kolanovic doesn’t believe potential interest-rate cuts will boost stocks. In his opinion, rate cuts would require a severe recession that brings down inflation. But that same recession would wipe out the market as well. Stock investors would find themselves in a no-win situation. He recommended traders shift exposure away from crude oil, which has sunk this year on recession fears, and buy more gold, which has rallied since late last year.7

Morgan Stanley strategists also see the brakes being slammed on the stock rally. For them, a sudden pullback in corporate earnings will be what hits the brake pedal. Earnings expectations and economic uncertainties leave little reason to believe positive momentum can continue. Their analysts say earnings per share for the S&P 500 are set to drop 16% this year. And this isn’t a long-range forecast. “We think that the downside risk to US earnings is now,” Morgan Stanley analysts wrote. In other words, expect yet another short-lived rally.8

“We would characterize this as the bear market is continuing,” said Mike Wilson of Morgan Stanley. “This is what bear markets do: they’re designed to fool you, confuse you, make you do things you don’t want to do, chase things at the wrong time and probably sell them at the wrong time.” In this case, a few outstanding stocks are bracing the whole market. But an equal-weight version of the S&P 500 shows prices remain roughly flat.9

Analysts predict growth will be the real problem in the second half of the year. Even if a severe recession doesn’t occur, there could be an earnings recession that drives stock prices down.

Think Long Term

Everyone knows stock markets are inherently volatile. Prices can experience sharp fluctuations driven by various factors such as economic indicators, company earnings reports, and even global events. While these fluctuations may create short-term opportunities for gains, they also come with significant risks. By thinking long term, you can navigate through market volatility with a calmer mindset.

Short-term stock rallies often trigger emotional responses from investors. FOMO (fear of missing out) can push individuals to make impulsive decisions based on market momentum rather than careful analysis. By adopting a long-term mindset, you can avoid falling into this emotional trap. You can resist the urge to chase the latest hot stock. Instead, you can focus on building a diversified portfolio based on risk tolerance, investment goals, and thorough research.

Wealth building is a marathon, not a sprint. Long-term strategies allow people to weather market downturns and take advantage of opportunities presented during bearish periods. Such a steady and disciplined approach can result in more financial security.

When thinking about long-term investment strategies, gold can play an essential role. Gold has been a store of value for centuries. It provides a hedge against inflation, economic uncertainties, and currency fluctuations. Including gold in your portfolio can help diversify your investments and mitigate risks.

One of the key reasons gold is an attractive long-term strategy is its ability to preserve purchasing power. Unlike paper currencies, which can be subject to devaluation over time due to inflation, gold maintains its value.

And for every rally, there is a plunge. Gold can provide security during inevitable stock market downturns. When equities experience significant declines, gold often exhibits an inverse relationship, rising in value. This negative correlation can help offset losses in other areas of your portfolio, providing a level of stability and acting as a buffer against market volatility.

By including gold as part of a long-term investment strategy, you can add a layer of diversification, stability, and security to your portfolio. A Gold IRA is designed to protect your financial future. Contact us today at 800-462-0071 to learn more.


1. https://finance.yahoo.com/news/stocks-surge-to-cap-first-quarter-rally-stock-market-news-today-200210736.html
2. https://moneyweek.com/investments/605743/a-bumper-year-for-stocks
3. https://www.barrons.com/articles/stock-market-rally-apple-tech-9bbb6f11
4. https://www.investors.com/news/stock-market-rally-hits-2023-highs-as-big-techs-lead-tesla-walmart-on-holding-in-focus-weekly-review/
5. https://www.marketwatch.com/story/u-s-stock-futures-higher-as-jobs-data-swings-into-focus-and-debt-ceiling-drama-ends-ec6024e
6. https://finance.yahoo.com/chart/
7. https://www.marketwatch.com/story/investors-should-put-more-money-in-gold-and-cash-as-rally-in-stocks-wont-last-top-jpmorgan-analyst-says-e5fce3bb
8. https://finance.yahoo.com/news/morgan-stanley-sees-shock-16-014332650.html
9. https://www.afr.com/markets/equity-markets/traders-are-duped-by-bear-market-rally-warns-morgan-stanley-20230529-p5dc9o

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