Where Do We Go from Here?

Chart of the Week for March 30-April 5, 2001

The S&P 500 stayed in negative territory for eight of the last 12 weeks to finish the quarter down (12.1)%, pushing the index into bear market territory. A bear market is defined as a drop of 20% from a previous high. Bear markets are normal and can be healthy for the equity markets. This one comes at a time when investors are concerned about the economic slowdown— though they remain relatively confident about the long-term prospects.

Investors have been so accustomed to reaping continuously high returns over the past decade that they tend to overreact to the slightest loss of momentum in the market. The relatively meager performance is nothing new: equities tend to fluctuate in the short run but follow a stable upward trend in the long run. Although past performance does not guarantee future results, history does tell us that stocks have outperformed all other asset classes over extended periods of time. Moreover, investors can find comfort in the fact that the S&P 500 Index has not been in negative territory for two consecutive years in the past 25 years. Once the dust settles, the market will recoup the losses incurred in the past few months, and continue to grow. Wherever the stock market takes us over the next few weeks, investors need to stay focused and invested for the long-term.

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