Another Market Dip Raises Concerns
While overall economic growth has been paltry, the stock market has surged in 2013. Both the Dow Jones Industrial Average and the S&P 500 indexes have surpassed all-time highs in recent months. However, this week brought some hints of summertime blues, as the market saw three straight days of declines. The dip came after comments from one Federal Reserve official that the government may soon scale back or end its bond-buying stimulus program, which has flooded the market with new money over the past year. That prompted some nervous investors to back off, while others, such as uber investor Warren Buffett, suggested that stock prices are artificially inflated right now because of the government stimulus.
Clark Hodges, a financial strategist with Dallas-based Hodges Capital, isn't fazed by the recent lull in the stock market. "The market has been very resilient this summer in my opinion," he tells KTRH. "I think we're just in the month of August and seeing some doldrums in the market, because there's not a lot of activity in it." Hodges also doesn't think the average investor should get too concerned about the possibility of the Fed cutting back or ending its stimulus program. "If you're in a diversified mutual fund or a 401(k) and the Fed comes out and changes something tomorrow, I don't think it changes the long-term outlook of that fund," he says. Hodges recommends paying more attention to the actual performance of the companies you're investing in rather than outside forces like government activity.
Most of these concerns about Fed activity or monthly unemployment numbers are like white noise to Hodges. "This is all surface-level, short-term market fluctuations news, it's not news that affects the market on a long-term basis," he says. For that reason, he advises against getting too caught up in the daily volatility of the stock market. "It will go higher, it will go lower, it will fluctuate, it will be volatile, that's what the market does," says Hodges. "But it eventually reaches higher plateaus and higher plateaus." Indeed, the Dow is now up by more than 130% since it bottomed out at the height of the recession in March 2009.
Get the latest market updates from the Wall Street Journal and Pat Shinn throughout the day on Newsradio 740 KTRH.