Stock markets: what's ahead

Anthony Saglimbene, Ameriprise Global Market Strategist

A man uses his laptop in a home office

Key Points

  • The roller coaster ride for stocks this year has tested investors’ resilience.
  • COVID-19 infection rates are likely to continue influencing the U.S. economy and create choppy markets throughout the year.
  • Now may be a good time to revisit your long-term investment portfolio with your Ameriprise advisor.

In the first half of the year, investors experienced a roller coaster ride in the markets. After a first quarter bear market decline of nearly 20%, stocks swung higher. The S&P 500 Index, for example, gained +20.5% in the second quarter — its biggest three-month jump since the fourth quarter of 1998.

So what’s next?

Through the end of the year, the Ameriprise Investment Research Group believes the path forward for stocks largely depends on how the economy responds to uneven re-openings across the United States. Without breakthroughs in a COVID-19 vaccine or treatment, virus flare-ups across economically significant states are likely to hinder overall growth in the coming months.

Consumers and businesses may be slower to reengage in regular activities, particularly in areas where COVID-19 trends are worsening. This tug of war between current circumstances and market expectations could create periods of market volatility in the third and fourth quarters of the year.

Historical insights for bulls and bears

In periods of uncertainty such as the one we’re in now, it can be challenging to discern a clear path forward. Depending on your point of view, history can provide reference points to consider. Here are two examples, and of course past performance does not guarantee future results.  

  • Bulls viewpoint: When the S&P 500 Index was up more than 15% in a quarter — there have been nine such periods since World War II — the Index was always higher and delivered an average return of +9.0% in the subsequent quarter.1
  • Bears viewpoint: Since 1928, the S&P 500 has been negative halfway through the year only 35% of the time — like it was this year — according to FactSet. In those years, returns through the rest of the year were generally subpar, suggesting limited upside for stock prices through year-end.

Actions to consider with your Ameriprise advisor

With the second half of the year underway, investors should check in with their advisors. They know your financial situation and goals best and remain committed to helping you.

  • Maintain a diversified portfolio. Depending on their stock/bond mix, some diversified portfolios may have already recovered their COVID-19 losses. Diversification is critical in all market conditions.
  • Anchor to your investment strategy. Throughout ups and downs or periods of intense market pressure, stay disciplined, focus on the long term and acknowledge your tolerance for risk.
  • Be strategic about your investment decisions. Consider high-quality companies with strong balance sheets and competitive advantages. Avoid the temptation to overreach for higher returns.

1 Bespoke Investment Group