U.S. stock performance was up ~6% in March, lifting equities out of correction mode after January’s sharp sell-off. But is that enough to restore the investor confidence that’s been lost? Volatile times like these can make or break successful investment strategies.
Shattered investor confidence can lead to a self-fulfilling prophecy, like bear markets or corrections, even as leading economic indicators are signaling a much less dire scenario. That’s the case presently where economic data are not signaling economic recession. For example, falling oil prices have never led into a recession; recessions are typically preceded by rising oil prices.
Therefore, the stock market appears to be pricing in a recession that shows no sign of occurring near-term. If so, stocks are undervalued relative to economic fundamentals, setting up for what could be a fierce recovery.
It has long been known that individual investors, as well as, some professionals, consistently buy-high and sell-low. Therein lies the rub; no investment strategy, no matter how good, can succeed if it’s abandoned in the midst of a corrective phase. Investing is never about decisions at moments in time, it is always about a decision process over time. Mustering the confidence to stick with your plan, even when it looks like it’s not working, is the price of success.