Dow, S&P 500 fears? Worrying about a correction is wrong way to invest

The Dow Jones Industrial Average and S&P 500 Index just suffered five straight days of losses and their worst weekly performance since — wait for it — June. Investors went into the summer easing up a little bit on stocks and have exited the summer with a similar bout of selling. Is there any more to it? Is the big one — the stock market correction bears have been waiting for — finally about to drop?

Many of the major factors cited for a potential selloff are well-known to investors, implying it is harder to see how at this point they would be the ones to cause a correction. There’s the delta variant. There’s the Federal Reserve taper and shift in central bank policy amid a sudden slowdown in job and economic growth. There’s the latest political headline — new wrangling in Washington D.C. over a corporate tax hike and potential tax on stock buybacks to help fund President Biden’s spending plan.

And there is the issue that has trailed stocks at every new record set during this bull market (and the bull market that preceded, or depending on your view, was interrupted by the pandemic): stock valuations are high.

There are also short-term pressures to consider: the “seasonal choppiness” of the fall, which market strategists say is real, and recent U.S. equity market downgrades from major Wall Street banks, which could keep pressure on shares, especially with so much of the recent money coming into the market from retail investors. But it is always more likely something investors can’t see coming (such as a pandemic) causes a historic market selloff than everything investors already know.

That makes technical market indicators and the historical performance of the S&P 500 one reasonable way to gauge whether investor confidence will outlast the latest round of selling.

For Keith Lerner, co-chief investment officer and chief market strategist at Truist, the history of the S&P 500 suggests that the bull market isn’t done yet, even if gains moderate.

Since 1950, there have been 14 years where the market has been up more than 15% through August. Stocks went on to add another 4% by year end, on average, and climbed in 12 of the 14 instances.