When stock and bond prices are behaving normally, it can certainly feel abnormal. By the end of July, 2023, the broad U.S. Stock Market Index^[1] had delivered a year-to-date return of 19.52%^[2], the best first seven months of a year since 1997. Nobody was questioning the rapid rise in prices until August and September rolled out an intra-year decline, erasing nearly 8% of the earlier gains. Pundits were asking the question weighing heavily on many investors minds, what is wrong with the stock market? The answers being given were often anecdotal and commonly linked to the major headline of the day. I work in an industry where simple answers to a simple question seldom occur. Maybe it's because long, complex answers leave the impression of more wisdom, experience or knowledge. At the risk of leaving my readers unimpressed I'm going to deliver a straight answer, stock prices in August and September should not be considered abnormal following the previous seven months increase. Investor psychology, for some, can work like this; stock and bond prices increasing feels normal while decreasing feels like something is broken or not working properly. It's not always easy to stay calm, remain focused and hold onto your investments; especially when facing what seems like a floodgate of reasons to sell. The concern and frustration is real and part of our job as financial advisors and planners is to help our client avoid common pitfalls of investing, like bailing on the long term plan when the road becomes bumpy. The history of broad stock prices has shown each past decline to be temporary. A financial plan may be five years to target, or fifty years. Short term price declines are built into the plan and therefore should not affect plan outcome. The chart below shows price movements of the S&P 500 Index from 10/17/2018 through 10/11/2023.

As you can see, the line is anything but straight. There are several points at which some investors would have bailed, like the sharp decline in 2020 and the negative performance in 2022. The important result, in my opinion, is the one at the end that covers the 5 year span, up 55.67%. If you annualize that return you significantly outperformed the returns of risk free, certain and no volatility investments.

So is it all about performance, getting the best possible return? Absolutely not. I have never considered capital market investing to be only for risk takers. For me, it's an appropriate method of combating inflation and has historically been quite effective. Inflation may not seem as frightening as stock market volatility but it can be very damaging to your purchasing power over time. It's always been there but felt more in recent years. The cost of goods and services, measured using the U.S. Consumer Price Index (CPI) , has increased 143.5% since 1990 (see chart below).

If you had money safely hidden under your mattress during this time frame you may not have suffered the volatility and uncertainty of stock market prices but may have experienced shock at how little your savings would purchase compared with the day it was tucked away. If you talk with enough baby boomers you're sure to hear stories about how they paid more for their last car than their first home, how they remember gas prices at $.60 cents per gallon and when the median family income was around $15,000 per year. While the CPI increased 143.5%, the broad U.S. Stock Market Index increased over 1,000% during this same time frame. That type of performance grew $100,000 into $1,220,000^[3]. This time period wasn't without its ups and downs and many investors called it quits during the rough stretches. The media was able to deliver negative and unprecedented headlines again and again, leaving some investors to conclude this time is different from any in the past. Somehow, it always feels different.

Whether you've been investing for a year or thirty years, you've likely witnessed stock prices defying expectations. The stock market doesn't like inflation.

The stock market doesn't like when the Federal Reserve raises rates. The stock market doesn't like global pandemics. The stock market doesn't like overseas conflicts. The stock market doesn't like high gas prices. A recession is imminent, it's a good time to stay out of the stock market. Yet, broad U.S. stock prices have defied each of these in the last four years alone with a $100,000 investment on January 1, 2020 growing to $134,000 as of 10/12/2023^[4]. The stock market has always been good at defying short term expectations. We should never wish for the day when stock prices become predictable, reacting consistently to recurring events, for that is the day all potential for a premium rate of return will be gone.

Rick O’Dell is the creator and author of Capital Markets University. He is also the president of O’Dell Capital Management. Rick has over 33 years of experience in capital market investing.

Rick O'Dell is the President of O'Dell Capital Management. O'Dell Capital Management (“OCM”) is a Registered Investment Adviser ("RIA") with the Securities and Exchange Commission. Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. The information contained here is for general information only. It does not constitute investment advice, or advice on tax or legal matters. Investment advice will only be given after a client engages our services by executing the appropriate investment services agreement and shall be subject to the terms and conditions therein. All investments carry risk, and no investment strategy can guarantee a profit or protect from loss of capital. Past performance is not indicative of future results.

Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security outside of a managed account. This should not be considered forward looking, and does not guarantee the future performance of any investment.

All investments are subject to risk, including loss. There is no assurance that any investment strategy will be successful. Asset allocation and diversification does not ensure a profit or protect against a loss. It is important to review the investment objectives, risk tolerance, tax objectives and liquidity needs before choosing an investment style or manager.

The Russell 3000 index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.

Inclusion of indexes is for illustrative purposes only. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

Past performance is not a guarantee of future results. Holding stocks for the long term does not insure a profitable outcome. Investing in stocks always involves risk, including the possibility of losing one's entire investment.

Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

[1] S&P 500 Index

[2] Ycharts S&P 500 Index 01/01/2023-07/31/2023

[3] Ycharts S&P 500 Index Growth of $100,000 01/01/1990 - 10/12/2023

[4] See chart on page 3