The Stock Market: It’s Full of Emotions!

Edward Mah - Dec 30, 2024

As the year comes to a close, it’s time to reflect on where we’ve been and where we’re headed. The stock market, like life, is an unpredictable journey—full of euphoria and despair, excitement and anxiety, generosity and caution.

As the year comes to a close, it’s time to reflect on where we’ve been and where we’re headed. The stock market, like life, is an unpredictable journey—full of euphoria and despair, excitement and anxiety, generosity and caution. This article is both a reflection on the emotional ride of the past year and a guide to navigating the opportunities and challenges of the year ahead.

We often speak of the stock market as though it’s that unpredictable uncle who shows up at Christmas dinner. We’re happy to have him there, but we’re never quite sure how he’ll behave. Will he be euphoric or despondent? Generous or miserly?

Beneath the charts and numbers, the stock market is deeply infused with human emotions. It pulses with the collective hopes, fears, and dreams of investors. While economic factors, corporate performance, and global events drive market movements, the emotions of participants play a critical and often underestimated role. Recognizing and understanding these emotions during the market’s various stages can help investors navigate its treacherous waters.

The Four Stages of a Market Cycle

Every market cycle unfolds in four distinct phases, each evoking its own set of emotions. Let’s explore them:

1. Accumulation: The Stage of Optimism

The accumulation phase marks the beginning of a new market cycle. This stage often follows a period of volatility and economic hardship, as seen during the market selloff of 2022. With interest rates climbing and recession fears looming, the markets fell sharply, making it tough to buy stocks. Yet, for those with the courage to invest, this was the ideal time to act. Remember: the market doesn’t ring a bell to signal its bottom.

2. Markup: The Stage of Excitement

The markup phase is like the market’s spring—prices steadily rise, optimism flourishes, and investors see the rewards of their earlier decisions. This stage is characterized by renewed hope and confidence as the market demonstrates its resilience.

Skepticism often lingers, but that’s healthy. As the market recovers, it rekindles passion for investing, rewarding those who weathered the storm and inspiring newcomers to join the journey.

3. Distribution: The Stage of Anxiety

During the distribution phase, the market peaks and begins to level off. Volatility increases, and uncertainty grows as investors question the market’s direction.

Savvy investors often start selling at this stage, locking in profits before prices plateau or decline. This selling pressure can lead to more widespread selling, fueled by anxiety that the market may fall further. Such fears can become a self-fulfilling prophecy, pushing the market into a downturn.

4. Markdown: The Stage of Despair (and Opportunity)

The markdown phase is the market’s winter—a time of falling prices, shrinking portfolios, and fading confidence. Yet, it’s also a golden opportunity for those with a long-term view.

Investor sentiment is at its lowest during this stage, and many choose to sell to avoid further losses. However, history shows that the darkest moments often precede a turnaround. For example, despite dire predictions of a recession in late 2022, this period marked the beginning of a recovery.

Seasoned investors understand that the markdown phase is temporary. They act strategically, accumulating quality assets at discounted prices, knowing the market will eventually rebound and deliver significant gains.

Where are we Now?

As 2024 comes to a close, we’re clearly in the markup phase. Optimism and passion for investing are widespread, tempered by a healthy dose of skepticism. The sharp selloff on December 18—triggered by Fed Chair Jay Powell’s comments about limited rate cuts in 2025—served as a reality check, reminding investors to moderate their expectations.

Concerns over President-elect Trump’s potential tariffs have added another layer of caution. However, these fears may be overblown, as Trump is likely to avoid significant market disruptions early in his presidency. The stock market will undoubtedly serve as a barometer for his success.

Our chief strategist, Brian Belski, shares a positive outlook for 2025. He projects a 13% increase in the S&P 500, rising from its December 20 close of 5930 to 6700. For the S&P/TSX, he forecasts a 16% rise, climbing from 24,600 to 28,500.

As always, the stock market remains a dynamic blend of numbers and emotions. By reflecting on its cycles and the lessons of the past year, we can step confidently into the opportunities of the year ahead.

 

To read Brian’s full report please go to (November 18,2024) Investment Strategy 2025 Market Outlook.

The Mah Investment Group wishes you and your family a prosperous and healthy 2025.  We are here to help you “build more” in the new year.