Friday’s jobs report propelled stock indexes into positive territory. Is it a sign the worst is over or another head fake in what may soon turn into the century’s third bear market?


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Friday’s jobs report propelled stock indexes into positive territory in a still-very-young 2019 following their worst start to a year in decades. Is it a sign the worst is over or another head fake in what may soon turn into the century’s third bear market?

There are reasons to be both optimistic and pessimistic, and that has led to the one constant of recent weeks: There will be volatility. Wednesday’s early-morning selloff was sparked by some of the weakest economic data seen from China in nearly two years, while Thursday’s plunge was sparked by Apple Inc.’s warning of a sharp and surprising slowdown in that country.

On the other hand, Friday’s jobs data was surprisingly good, capping off the best year for job growth since 2015 and notching the longest streak ever. The icing on the cake came from Fed Chairman Jerome PowellFed Chairman Jerome Powell, who soothed investors’ concerns about the pace of further rate increases.

Reading the market tea leaves isn’t any easier than reading the economic ones. Stocks ended the first week of 2019 around where they were a week before Christmas, but recent trading has been anything but normal. In the past month, intraday swings in the Dow Jones Industrial Average have never been less than 200 points and on average they have been 600 points.



It has become something of an article of faith among investors that the start of the year holds important clues about the rest of it. For example, the writers of “The Stock Trader’s Almanac” note that since 1950, a down January for the S&P 500 has signaled a new or continued bear market without fail. By contrast, years with a good January saw an annual gain for the S&P 500 more than 85% of the time.

It isn’t just where stocks wind up in January, though, but how they get there. A particularly tumultuous January—a very good one—came in 1987. Stocks rose overall that year, but also suffered their worst-ever single-day loss in October. On the other hand, 1975 and 2009 saw big January moves and big gains for stocks, though they followed the deepest-ever bear markets of the postwar era.

The losses investors have racked up in recent months are nothing of that magnitude. Only the Nasdaq Composite and Russell 2000 indexes have even reached unofficial bear-market territory in recent weeks, and barely.

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The market is cheaper, but by some reliable measures not really cheap, and certainly not poised for the sorts of gains it has seen after longer, sharper tumbles. One measure of market value, a cyclically adjusted price/earnings ratio popularized by Yale professor Robert Shiller, for example, is trading at around 28 times. That is a bit above where it was when the most recent bear market began in 2007.

Making matters particularly difficult for investors trying to decide whether to stick with stocks or head for safer asset classes is the fact the current bull market has seen several rough patches that turned out to be buying opportunities. Economic and profit forecasts for the U.S. remain encouraging, too. Stock strategists see further, modest gains in stocks in 2019.

On the other hand, prognosticators have a horrific record of identifying turning points. Forecasts were upbeat in 2000 and 2007 until they weren’t, and with the weakness possibly emanating from relatively opaque China, getting the call right will be even tougher. Then there is the volatility investors have had to contend with of late, a marked contrast to the placidly rising markets of recent years. The gyrations have likely cost investors money if they missed some of the rebounds.

Take the day after Christmas, which saw the biggest-ever point gain in the Dow Jones Industrial Average. The 1,086-point bounce followed a four-day preholiday stretch that had erased nearly 1,900 points from the index.

By the day of that gain, U.S. mutual and exchange-traded funds had seen net outflows of a little over $100 billion in just the preceding three weeks, according to the Investment Company Institute.



It is almost always true that very good days come in the midst of very bad ones. Missing just a handful of them is surprisingly costly. For example, an investment in the S&P 500 over the past 15 years would have grown $10,000 into a little over $30,000, according to Putnam Investments. But missing just the 10 best days would have cut that sum in half; sitting out the best 20 would have erased all the returns.


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In other words, just one half of 1% of trading days over that stretch made up all of the profit to be had from owning stocks. Many of those days were in the heart of the 2008 financial crisis when individual investors were far more spooked than they are now.
The only clear message of that era, and one that can be applied today, is that to navigate market upheaval, investors have to stick to their plan rather than react to wild gyrations and scary headlines.