Investors: Should You Be Worried About the Stock Market Right Now?

Key Points

• More than 40% of investors feel "bearish" about the market's six-month horizon.

• While a recession may or may not happen this year, risk factors are mounting.

• However, history has promising news for nervous investors.

• 10 stocks we like better than S&P 500 Index ›

The stock market has been surging in recent months, but many investors are still feeling on edge.

As of this writing, the S&P 500 (SNPINDEX: ^GSPC) has soared by close to 31% since April, while the tech-centered Nasdaq Composite (NASDAQINDEX: ^IXIC) is up by 43% in that time. However, around 43% of investors feel pessimistic about the upcoming six months, according to the most recent weekly survey from the American Association of Individual Investors.

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With the Federal Reserve expected to cut interest rates, citing an uncertain labor market, many Americans are concerned about what this might mean for the future. So should you be worried about investing in the stock market right now? History has a promising answer.

Image source: Getty Images.

Is a recession coming?

Nobody can say for certain when the next recession will begin, but there will be one eventually. The market and economy cannot keep climbing indefinitely, so at some point, there's bound to be a pullback.

Between trade wars and tariff uncertainty, more frequent layoffs, and decreasing consumer confidence, recession risks are on the rise. Still, though, nothing is set in stone. In June, Goldman Sachs gave a 30% probability of a recession happening in the next 12 months, which was down from its 45% probability in April.

New policies out of Washington can affect recession probabilities, so even the experts can't say when the next downturn will begin, how long it might last, or how severe it might be. But by focusing on the market's long-term outlook, it can be easier to avoid the anxiety around its short-term fluctuations.

History has good news for investors

Recessions and corrections are an inevitable part of the stock market's normal cycle, and while they can be daunting, they're also temporary. The average S&P 500 bear market since 1929 has lasted around 286 days, or around nine months, while the average bull market has lasted more than 1,000 days.

Not only has the market survived every single recession and downturn so far, but it's also gone on to earn positive total returns. In fact, in the last couple of decades alone, the market has experienced some of the most severe downturns in history.

In early 2000, the dot-com bubble burst led to one of the longest bear markets the S&P 500 has ever faced. It took years for the market to start reaching new all-time highs, and almost immediately after it did, the Great Recession began.

That recession was the most severe economic downturn since WWII, and the S&P 500 wouldn't reach a new all-time high until 2013. By today, though, the index has still earned total returns of nearly 342%.

^SPX data by YCharts.

More recently, we've also faced the COVID-19 crash in 2020, the bear market throughout 2022, and the market correction earlier this year amid tariff uncertainty. Yet despite everything, if you'd invested in an S&P 500 index fund around 25 years ago, you'd have more than quadrupled your money by today.

More volatility could be coming, but if history shows us anything, it's that a long-term outlook is critical in times like these. As long as you're willing to stay in the market for at least a few years or even a decade or two, it's highly likely your portfolio will not only recover, but also experience significant growth.

One big caveat to remember

Staying invested for the long haul can significantly reduce your risk during periods of volatility, but it's equally important to invest in quality stocks and funds that are capable of surviving economic instability.

Shaky stocks can often perform well when the market is thriving and investors are feeling optimistic. But if the economy takes a hit and the market plunges, stocks that don't have healthy financials, a competitive advantage, or a strong leadership team will likely struggle to pull through.

One of the best moves you can make right now is to comb through your portfolio and ensure you're only investing in strong stocks with solid fundamentals. Robust stocks can still lose value during a market downturn, but healthy companies are more likely to recover over time.

Time will tell when the next recession will begin, but it never hurts to start preparing just in case. By investing in strong stocks and holding those investments for as long as possible, you can rest easier knowing your portfolio is more protected against volatility.

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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.