The S&P 500 index (SNPINDEX: ^GSPC) has generated a total return of 22% in the past 12 months (as of July 9). Compared to the benchmark’s historical average annualized gain of 10%, this is a superb showing. Investors might find it easy to be bullish.
You’re surely wondering what the coming year will bring. If I could tell every investor one thing about the next 12 months in the stock market, it’s this.
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Expect the unexpected
It seems that everyone has always been waiting for the economic environment to normalize. However, the smartest investors have figured out that the economy and markets are always in a state of uncertainty. This is the reality of how things actually work. No one has much of a clue what’s going to happen next.
Investors looking at the next 12 months should heed this advice: Expect the unexpected. This is one thing to always keep in mind. That advice applies to a range of topics. For example, the market might have hoped that the Federal Reserve would start to cut interest rates. Then a new conflict in Iran led to surging energy prices. This was impossible to predict at the start of the year.
Zooming out even further, no one could have known just how important artificial intelligence (AI) would become. But in late 2022, OpenAI released ChatGPT, which took the world by storm. This essentially resulted in the massive AI infrastructure build-out we’re witnessing, which is expected to exceed $1 trillion in annual spending. AI has been a boon for certain industries and a possible major headwind for others.
Keep a long-term outlook
Expect the unexpected. Moreover, be comfortable with the uncertainty. This mindset shift, while extremely valuable, shouldn’t discourage investors from putting money to work.
You might believe that the best course of action is to wait until consumer confidence improves, inflation stabilizes, or there’s more clarity on how AI will play out. That seems like a rational and sensible thing to do. Don’t put capital at risk until you have more confidence, right?
But for investors who maintain a long-term outlook, one defined by owning high-quality stocks for at least five years, then all of these factors are just noise. They can get in the way of building wealth in the market, which is the ultimate objective.
