Why I'm Not Worried About the Stock Market

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A lot of scary words have been floating around with “recession” and “inflation” at the top of the list. People are worried about the economy and the Federal Reserve has not been helping as it steadily raises interest rates. That, in theory, acts as a check on inflation, but mostly makes money more expensive which impacts mortgage rates, credit card interest, and really any money people borrow going forward.

That has driven the Dow Jones Industrial Average steadily downward. The index fell by nearly 500 points on Sept. 23 sending it to a low for 2022. In a broad sense. it’s not just the Dow as the Nasdaq has steadily fallen as well.

We all know the story and understand the fears, but market fears about what might happen don’t actually track with what’s actually happening in the U.S. economy.

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The U.S. Economy Has Been Strong

Obviously, inflation has hit many lower-income Americans hard. But the employment market remains strong with the unemployment rate sitting at 3.7%. That’s not quite a historical low, but it’s in that range. In addition, there’s exactly one-half of an available job seeker for every available job opening, That actually is a historical low since the Bureau of Labor Statistics has been tracking that data.

Job openings, however, don’t always mean good jobs, but wages have also been rising in the service industry and even fast food jobs. Walmart (WMT) , Target (TGT) , Yum! Brands (YUM) , Starbucks (SBUX) , and a number of other retailers have embraced a $15 minimum wage.

And, while the employment market remains strong, the flip side of that is rising housing costs coupled with higher mortgage rates. That’s not great news for people buying a house (even if history suggests they still should) but it has a flip side. If you own a house, it has become a fast-rising asset that increases your net worth.

The economy is, of course, personal. If you can’t find a job or afford to live where you want to, that’s very real. Broadly, however, there are a lot of signs that the economy remains strong and that many of the issues we’re having relate to what might be called a pandemic hangover.

Market Drops Are the Best Times to Invest

Many of my favorite companies have dropped by 30% or more. I don’t stop believing in Costco (COST) , Walt Disney (DIS) , or Microsoft (MSFT) (just to name a few) because their share prices have fallen. In fact, I look at all three of these companies and how they handled the pandemic and prepared for the future and feel better about them.

Stock price does not always equate to performance in the short term. Disney, for example, has the best intellectual property (IP) of any entertainment company and has endless pricing power. In fact, if you were offered “every other companies’ IP” or Disney’s, you can make  a case to take Disney.

Costco just delivered one of its highest renewal rates ever (over 92%) and continues to add members, Microsoft has only gotten stronger as it pivots more fully to a software as a service model, yet all three of those companies have seen double digit stock drops this year.

In a bad market, I cling to the mantra “time in the market beats timing the market.” Now is the time to add to your holdings in really strong companies. Consider that good companies are now on sale, really big sales in some cases, and add strategically to your long-term holdings.

After you do that, remember that long-term means years. Check in on the companies you own to make sure they have stayed on course, but don’t check your portfolio everyday. A market drop feels bad, but historically, it means nothing. Good companies will recover and investing in them, plus time (maybe a lot of time) is what makes investors rich.