On the roller coaster that we call the stock market, it is easy to miss the forest for the trees. Volatile short-term moves are especially pronounced in today’s economic environment. But do they have any meaning in the larger scheme of things?
The following chart provides a big picture of the stock market. More important, it provides the picture in terms of purchasing power, that is adjusted for the deterioration in the value of the dollar.
Major moves tend to be a decade or more in length. Forget this week or last month and recognize that we are in a downturn and have been for a bit over ten years. Is it about to end or do we have another decade left to endure the bear market?
Of special interest is the rise of 266% during the Great Depression! Those who bought at the right time in 1932 looked like geniuses until the turnaround in 1937 occurred.
Where are we now? Are we nearing 1932 or are we headed for 1937? Money is to be made, but is it on the long or short side of markets?
When markets respond to Central Bank liquidity injections by rising, are they rising enough to offset the potential loss of purchasing power that will likely accompany such moves?
These are all questions to ponder. These are not easy times for investors. There is no yield on bonds and great volatility in other markets.
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