The S&P 500 (SNPINDEX: ^GSPC) roared higher in the first half of the year, reaching a record high and confirming the presence of a bull market. But it didn't stop there. The index went on to reach new highs multiple times and delivered one of its best first-half performances in the past 25 years. In fact, it was the fifth-best performance during that time period, a J.P. Morgan Wealth Management report shows. Technology stocks led the gains, signaling investors' interest in high-growth players -- and a certain renewed optimism about the market and the general economy.
But only a month into the second half, the picture looks somewhat different. The S&P 500 delivered its worst July in 10 years, gaining only 1.1%. This is a departure from historical trends since July tends to be a strong month for the stock market. Of course, part of this July movement could be nothing more than investors locking in profits on stocks that have soared in recent times. For example, market star Nvidia, which climbed nearly 150% in the first half, has slipped 13% so far in the second half.
Still, a weaker-than-expected jobs report last week weighed on investor sentiment -- and the Nasdaq even fell 10% from its record high, reached in early July. So now, you may be wondering if this is really the right time to start investing or add more stocks to your portfolio. Let's find out.
Image source: Getty Images.
Consider stock performance over time
First, it's important to consider stock market performance over a period of years. If we look at all of the major indexes throughout history, they've gained after every period of losses. So, if you buy a particular stock or index fund today, and it goes on to fall further, don't worry. If you've chosen a quality player with solid long-term prospects, that stock could climb over the long term. We've seen this happen in the past with stocks across industries -- even though they've slipped on certain occasions, they've gone on to win over time.
So, right away, I'm going to answer our question: Now is a good time to buy stocks if you hold on for the long term. By this, I mean for a period of five to 10 years. This allows the company time to deliver on its growth promises, and you time to benefit from the resulting stock performance -- and in some cases this also offers you the opportunity to truly benefit from dividend payments. Long-term investing also means you don't have to worry about disappointing months, such as this past July, or short-term challenges a particular company may face from time to time.
Now here's another reason why today is a great time to buy stocks. A market dip offers you the chance to pick up fantastic long-term players -- and often those that have soared prior to the recent decline -- at an interesting price. For instance, many of the leading players in the high-growth area of artificial intelligence (AI) have seen their shares slip recently. But the technology remains just as promising as it was a few months ago -- and analysts predict today's $200 billion market should reach more than $1 trillion by the end of the decade.
This means there should be plenty of growth ahead for companies focused on this area, such as Nvidia, Amazon, and Meta Platforms, for example. Each of these stocks has seen its valuation decline over the past month, offering investors an interesting entry point.
NVDA PE Ratio (Forward) data by YCharts
Dividends and "safe" stocks
In times of uncertainty, you may also want to add a few dividend stocks to your portfolio or companies seen as "safe," such as healthcare players -- even in tough economic environments, people need their medicines and medical procedures, and this keeps these companies' earnings relatively stable. And dividends offer you recurrent passive income that can limit your losses in difficult times.
Does all of this mean the market right now is heading for rough waters? Not necessarily. The S&P 500 delivered a strong first half, and historically, this has led to a solid second half too. In 18 of the 22 times since 1950 the index has advanced 10% or more in the first half, it's gone on to gain in the second half -- this is according to the JP Morgan Wealth Management report I mentioned above.
But whether the index wins or loses in the coming months, long-term investors shouldn't worry. In investing, time always is on your side. And that means right now makes a great time to invest -- this move today could represent a big step along your path to financial freedom.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon, JPMorgan Chase, Meta Platforms, and Nvidia. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
