For the twelve-month period ending June 30, 2011, while the global economic news was mostly cloudy, equity investors enjoyed the equivalent of blue skies. Most developed and emerging-country stock markets had positive double-digit returns, some in excess of 30%.
If someone knew a year ago that global markets would stage such a broad-based rally, one would have assumed that trends in employment, housing, and financial distress were about to take a pronounced turn for the better. In fact, they have done nothing of the sort.
Somehow, despite gloomy financial page news that kept repeating itself, equity prices marched substantially higher.
Now, as equity prices have turned lower in the past month, and have become especially volitile in the past several days, the financial pages are again full of dire forecasts. Really, if you compare the headlines, it's just like last year.
No one knows if the stock market will react differently this year to similar news. Based on last year, however, we know one thing for certain – markets do not base their movements on proclamations from the financial media!
Remember the bottom line: Due to unforeseen events, no one can accurately predict the direction of markets. Rather than react to stormy news, you should act on what's already known, and consistently keep your financial plan and asset allocation both cost-effective and aligned with your risk tolerance.
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