Fear is on the rise as Wall Street considers what might happen if the U.S. decides to take military action against North Korea. Any conflict would probably result in a drop in stock prices; however, that move would likely be short lived.
Why? Over the long history of the stock market, there have been many causes for concern, but ultimately, the growing economy pushes prices higher. Two recent stock market fears were the election of President Trump and the United Kingdom's decision to leave the European Union (AKA, “Brexit”). The stock market suffered a very large decline overnight when Trump won, but closed higher the next day. Likewise, it took stocks just two weeks to recover from the UK's decision. Looking back a little further shows similar results. For example, the market recovered in just five days from the Cuban missile crisis in 1962. It took just 19 days to recover after the September 11th attacks. It would not be surprising to see some more short-term weakness in the stock market until there is some clarity regarding North Korea.
With that said, there are a number of things working in the stock market's favor right now. First and foremost, there is the very low recession risk, indicating that a drop in stocks could be a buying opportunity for you. Second, the rise in investor fear is actually a good thing because it means the “nervous” money is getting out. This then becomes money that’s sitting on the sidelines, ready to go back into the stock market, creating possible future buying demand. Third, when stocks of big companies have a strong first quarter, the rest of the year tends to be very good with positive results approximately 88% of the time. And currently, for all of 2017, Simply Money Advisors expect earnings for companies in the S&P 500 (the 500 largest companies in the U.S.) to grow around 18%. This would be the best year for earnings growth since 2010.
The Simply Money Point
At Simply Money Advisors, we believe stocks will head higher this year, and the growth will be driven by the economy and earnings. If there are short-term fluctuations, either due to North Korea or any other global or domestic event or threat, it’s important to always stay true to your financial plan. You shouldn’t be making your investment decisions based on headlines.