After two years of solid market gains, you may be wondering what comes next. Historically, the market drops 10% about once a year, so don’t be surprised if we see a 1,200-point drop in the Dow, says Kate Warne, investment strategist at Edward Jones.
“Over the long term, stocks tend to follow the growth of the economy and corporate earnings, which are improving. However, in the short term, investor emotion can heavily influence them. Currently, that pendulum has swung back from fear toward the center, as investors remain wary but are becoming anxious that they’ve missed out and may feel the need to be aggressive to catch up,” she says. Stocks have risen steadily since their March 2009 lows, and the S&P 500 has almost doubled in price. But periodic pullbacks are “almost certain,” Warne says.