Hold investment course, Cape-area financial advisers say

Even with the stock market's wild swings this month, local financial professionals say it shouldn't change how people invest.

Standard & Poor's downgraded the U.S. credit rating Aug. 5 to AA+ from the top AAA rating, triggering one of Wall Street's wildest weeks in the following days. The Dow Jones industrial average rose or fell by at least 400 points in each of the first four days of last week. It's the first time that has happened.

"Investors should not allow short-term stock market fluctuations to derail their long-term investment decisions," said Cheryl Mothes, a financial adviser with Edward Jones in Jackson. "The volatility in the market is being fueled by fear ... fear over U.S. and European debt, not by market fundamentals, which we believe are generally strong."

The 2008 bear market, when stocks lost a lot of their value, is still fresh in the minds of many investors.

"Investors who do panic during volatility stand the chance of losing the most because they will not be in the market when it does begin to rally," said Shannon Daniels, vice president and financial consultant at Commerce Brokerage Services in Cape Girardeau.

The first trading session after the downgrade saw a worldwide market sell-off but also a huge inflow of cash into U.S. Treasurys. That's a strong sign, according to Daniels.

"This was a signal that much of the world still believes that U.S. Treasurys are one of the safest investments in the world," Daniels said.

There has been positive economic growth, but it is coming at a slow pace since the last recession ended in June 2009.

For many people, it may still feel like the country's in a recession, but the National Bureau of Economic Research defines a recession based on a significant decline in economic activity across the economy lasting more than a few months and visible in the gross domestic product, real income, employment, industrial production and wholesale-retail sales, according to its website.

Nationally, there's been a lot of talk about a double-dip recession -- one recession is closely followed by another.

"In a double-dip recession, the economy never fully recovers completely from the first recession before sinking into a second one," said Dr. Bruce Domazlicky, director of the Center for Economic and Business Research at Southeast Missouri State University.

The last double-dip recession occurred in the early 1980s. A recession ran from January through July 1980, followed by another one from July 1981 through November 1982.

Domazlicky doesn't think a double dip is likely this time.

"I don't think we will have an actual recession. More likely we will experience another year or two of slow growth, 1 to 2 percent per year," Domazlicky said. "The main problem is all the debt consumers have and the uncertainty is holding back their spending."

Mothes said there are reasons for people to be optimistic, such as job growth and record corporate earnings.

According to the U.S. Bureau of Labor Statistics, 930,000 jobs were created from January through July this year. More than 1.3 million jobs were added last year.

Both Daniels and Mothes agree that now is a good time to enter the stock market.

"Even before the current volatility, stocks have been very attractive," Daniels said.

According to market analysis information provided by Lyle Davis, financial adviser with Wells Fargo Advisors in Cape Girardeau, there have been 25 bear markets since 1900. A bear market -- when stock prices drop 20 percent or more -- is usually followed with a strong rebound, he said.

In all 25 bear markets since 1900, the Dow Jones industrial average has had an average rise of 42.5 percent during the next 12 months.

"I think for investors' confidence to return to the markets, we need to see elected officials and leaders around the world come together to find solutions to issues that threaten economic stability," Daniels said. "We are part of a global economy and the volatility and uncertainty that we have been experiencing is not just a result of issues in the United States."

mmiller@semissourian.com

388-3646