One of the important jobs I have to do for my financial planning clients, my subscribers to the Switzer Report and the many media audiences I communicate with, including my own Switzer Daily audience, is to keep the ups and downs of stocks in perspective.

Last week I tipped that a speech by Jerome Powell, boss of the US central bank, would either help or hurt stocks. Given the Dow fell over 1,000 points after his speech and our market dived 1.95% the following Monday, it’s fair to say Jerome disappointed those who wanted stock prices to keep on rising.

In a nutshell, Powell said that his fight with inflation isn’t over yet, so he’ll keep raising interest rates until he’s sure he has beaten it. At the same time, he’s trying to avoid a recession, which means he’ll be careful not to go too far with these rate rises.

Before he spoke, the market thought his Federal Reserve had done enough to slow down inflation, so some smaller rate rises were likely. That’s why the stock market has been rising since mid-June, with both the US and our market rising by about 10%+.

The lesson is clear: when rate rises are over or fall in size, stocks will rise. I’ve always argued those rises will start to be pulled back in October (that’s my guess), so I expect the stock market to make another comeback in the December quarter and roll into a good year in 2023.

Until then, we have to cope with a disappointing stock market, but it won’t be a worry forever. I’d love to encourage my clients and followers to try and time the market, but it’s so risky. That said, I’ve been right in suggesting the market had bottomed by mid-June and I expected that another sell-off was on the cards. But tipping the market and stocks short-term is just too risky.

Not even Warren Buffett, the best investor of all time, has confidence in tipping the market short term.

Writing for CNBC, journalist Tae Kim said this about the founder of Berkshire-Hathaway, an insurance business that buys stocks/companies: “Warren Buffett believes trying to time the market is a waste of time and hazardous to investment success”.

This is what the man called the Oracle of Omaha tells us: “I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good,” Buffett said. “If we’re right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do … If you’re right about the businesses, you’ll end up doing fine”.

When I invest for myself or my clients, we select good businesses that could be out of favour with the market but eventually, they will show their quality as businesses, and then their stock price will show that we were right.

The last few years have been shocking for investing safely because there has been:

1. The Trump-China trade war.

2. The Coronavirus crash of the stock market.

3. The lockdowns that created recessions worldwide.

4. More covid challenges with Omicron.

5. China’s extended lockdowns, which pushed up the cost of imports as well as inflation.

6. Then Russia invaded Ukraine, taking oil prices and inflation sky high.

7. And this led to such high inflation that central banks had to raise interest rates faster than was expected, which made some market players fear a recession was possible.

This chart shows how hard it has been for stock players who are happy to risk being fully invested in stocks to get a 10% return. This is what someone should get per year over a decade if they’re prepared to be fully invested in stocks (I’m not saying you get this return every year, but on average you should get this each year over a decade).

S&P/ASX 200 5 years

Over the five-year period, the stock market has returned 4.3% plus say 4.5% for dividends, so that’s about 9%. But over the past three years, the usually great stock market has returned 1.8% plus dividends of 4%, which means a return of 5.8% a year. But that’s what you’d get if you took the risk to be 100% invested in stocks.

With the bond market falling (partly because central banks had to rescue the world from a Great Depression by taking cash and bond rates down to 0.1%), now they have to try and get back to normal. It has been really hard to get ‘normal’ returns from financial markets because of all these pandemic problems.

But remember this: if central banks hadn’t done this, a Great Depression would really have given you something to complain about.

Too many people have not even thought about that.

We dodged a huge economic bullet, loaded by a crazy virus, which few financial gurus ever imagined would come our way.

In a word, for someone like me who always tries to help my clients and followers keep their heads when short-term trouble brews, it has been a “nightmare!”

Historically, if someone was investing 60% in growth/stocks investments and 40% in less volatile fixed interest or bond investments, the overall returns were quite reliable. Historically, when stocks fell, bonds tended to rise and vice versa, so the bonds reduced returns a bit in booms but softened the slide when stocks slumped.

Over the past year, bonds and stocks fell at the same time, which was weird but was a consequence of the pandemic. If you want to read more about this, check out this explainer from Morningstar.

OK, that’s all the bad stuff that has made making money hard over these last three years, but what makes me positive about the future, once the inflation fight of the central bank is over and inflation is heading down?

Here are 10 reasons to keep the faith for a rebound in stocks:

1. The best period for stocks is November to April.
2. The US stock market does best after the mid-term elections in November in the second year of a Presidency and through to the fourth-year Presidential election. Mid-terms are on this year.
3. After stock markets have big sell-offs, they tend to have big rebounds. The Nasdaq was down over 30% this year and the S&P500 was off over 20%.
4. Interest rate rises will eventually be curtailed. We’ve seen how the market buys tech/growth stocks. The recent 10% rebounds of the US and our market are sneak previews of what is likely to happen when Jerome Powell eventually delivers the good news that rate rises are over and inflation is on the way down convincingly.
5. The Ukraine war has to end eventually and oil and energy prices will fall which will be a big boost to the global economy, and stocks will love that.
6. The supply bottlenecks created by the pandemic will gradually be less of a cost issue, which will be good for reducing inflation as well.
7. China is promising to spend big to pump up its economic growth rates.
8. The actual stock market sell-off has taken share prices down, such that many companies just look like screaming buys.
9. Some of Wall Street’s best big call merchants are tipping a sizeable rebound for the S&P500 Index in the December quarter and more and more have been jumping on board. The Powell spooking of the market is a temporary setback but once interest rate rises cease, a surge in stock prices should result.
10. History has shown stock markets have returned 10% per annum over a 10-year period and they go up 7-8 years out of 10. Given the terrible three years that we’ve seen lately, it’s highly likely a big booming few years could come through to deliver those historically reliable returns.

It’s at times like these that I like to repeat the words of Rudyard Kipling in his epic poem If.

Here’s my twist on that poem:

“If you can keep your head when all about you are losing theirs and blaming it on you…you’ll be a wise investor, my friend.”