Financial Literacy Friday: Rebounds
Welcome back to Financial Literacy Friday, and this week I’ll stay away from depressing financial disasters as promised and focus on something a bit more positive: rebounds. Like market corrections and recessions, rebounds are a change in market trajectory but unlike those they are positive. They can be applied to the market, but rebounds can also happen in the economy and signal a period of economic or market growth and revitalization from lower levels. That being said, let’s take a look at what a rebound actually is and give you some examples of recent rebounds.
What is a Rebound?
So as I mentioned the last two weeks, downturns in the economy and market occur when businesses grow too fast or stocks are overvalued and value tumbles as a result. These are a normal part of the business cycle just as rebounds are a natural part of the cycle. Rebounds are the upswing in market or economic conditions after a recession and lead to growth of the market and strengthening of the economy. Rebounds in the market are what make holding on to investments worthwhile in down times, as they are responsible for setting things back on track and bringing wealth to the patient investor. The important thing to remember is that over the course of modern economic history, there has never been a downturn or recession that wasn’t followed by a rebound. If you have a strategy that you believe in and someone you trust to give you objective advice, weathering a downturn can work out well for you in the long run.
At the beginning of 2016 there was a sharp decline in the market in the first few weeks which was thought to be a bad sign of long term decline as the Dow Jones dropped more than 2,000 points. While it hit it’s low in February, by the middle of March the market had rebounded and was back where it was before the slip. This drop was certainly scary for investors, but those who take a long term approach to reaching their investment goals saw this as a temporary and expected setback before the market continued on gaining for the next few years. The other recent rebound occured in 2016 with the oil market. Over the course of 2015 and early 2016 the price of oil steadily fell and was a major trigger for the market decline in early 2016 mentioned above. While the market rebounded in March, the oil commodity market took another month before a $40/barrel rebound occured and greatly eased the fears of market prognosticators.
Just remember that after every drop there has always been a rebound. So while may seem very dark like in 2008, or begin to look bleak such as in 2016 the market will rebound. If you’re interested in learning more about how a strategy of patience can be helpful in cutting through the noise of short term market trends, send me a message.