With Q3 earnings season kicking into gear, the three major U.S. stock averages stayed near record highs in the past week. But inflation may be damping investor sentiment. Fund managers turned bearish on growth prospects for the first time since the depths of the pandemic. And on Friday, even Fed Chair Jerome Powell, who has been calling inflation “transitory,” said high inflation is likely to last “well into next year.’ The market appears to be struggling for direction but positive earnings from companies are taking the stock market higher. 

The question is “Should investors put more money into the market or play safe?”

Future Wealth’s View

Our view, at Future Wealth, is that we are in a bull market that began in March of 2009 and continues, accompanied by the typical and inevitable pullbacks and corrections. Its end will come either when stocks get too expensive relative to bonds or when earnings decline, neither of which is the case now. 

While it is easy to get misled by pundits on CNBC who pontificate that the market is too expensive and/or its time to be defensive, long term investors may do well to remember that, in the post-war period, the US stock market has gone up in around 70% of the years because the US economy grows most of the time. Most of the returns in stocks are concentrated in sharp bursts beginning in periods of great pessimism. Bill Miller, one of the most successful mutual fund managers of all time once stated “we believe time, not timing, is key to building wealth in the stock market”.

Worrying constantly about a correction or if the market is too expensive etc. is simply a waste of time. Today’s worries include high and rising fuel and food prices, labor shortages, inflation, the effect of Federal Reserve tapering, disrupted supply chains and so on. A year from now those worries will have been replaced by a new set of worries.

In the meantime, the bull market continues and parking money in bank accounts makes no sense when inflation is running well above bank interest rates. Given this backdrop, should one put new money in the stock market or not? You be the judge.