Stock investors could be in for a wild ride this month, given that two of the most momentous market turning points in U.S. stock market history occurred in March.
It’s important to remember both of these anniversaries in tandem, since it’s difficult not to draw the wrong conclusion when focusing on either of them in isolation. A focus on the bursting of the internet bubble could lead you to avoiding equities altogether, for example, while a focus on the March 2009 beginning of the bull market could lead you into a too-high allocation to stocks.
• Valuations matter. Stocks in March 2009 were cheaper, according to several different valuation ratios, than they had been in several decades. The strength of equities’ subsequent bull market shouldn’t have come as a surprise. Of course, no one should be surprised that valuations exert an extremely weak gravitational pull on the market’s short-term direction. Throughout history, valuations have had their biggest impact only over many years.
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