The Weather of the Stock Market

Investing your retirement savings in the stock market is always a bit of a gamble. But over the long term the market has a positive bias. According to the "Stock Trader's Almanac" it goes up 53.5 percent of the time. And so your IRA or 401(k) will likely produce positive results over your career, keeping up with inflation and then some. Many of us can thank the stock market for turning our small but regular 401(k) or IRA contributions into a substantial amount of capital to finance our retirement.

But the stock market sometimes runs into stormy weather, which can blow away your gains before you know it. And when you're retired, you don't have the "long term" to gain back those losses.

So what is the weather report for the stock market today? Should we be worried about what's on the horizon, or do fair skies lie ahead?

Short-term outlook. September is typically a bad time for stocks. According to Ned Davis Research it is usually the weakest month of the year, producing a lot of volatility and averaging slightly negative returns. And October isn't much better. Few of us are old enough to remember October 1929, but a lot of us recall the panic of October 1987. So the weatherman says: Don't put out to the stock market seas in September.

The longer term outlook. Yet, the current bull market shows no signs of deteriorating. Despite five years of steady gains for the market, by most measures stocks are not overvalued. And the economy, which is churning out 2 to 3 percent growth, 200,000 job gains a month and very modest inflation, shows little danger of falling into recession anytime soon. The longer term forecast calls for clear sailing ahead.

The fourth quarter is good for stocks. While September is the weakest month for stocks, November, December and January are historically the strongest months for the market. Presumably, after an unsettled autumn, the wind turns favorable for stocks and propels the market forward into the following year.

The presidential cycle is in your favor. According to the "Stock Trader's Almanac", the third year of a presidential term, which will be 2015, has on average over the last century brought stock market gains of 12 percent. And the fourth year, 2016, typically brings another 7.5 percent boost. No one knows exactly why this is true, but economists theorize that as the election approaches the incumbents do everything they can to speed up the economy to improve their chances for re-election.

And there is still nowhere else to put your money. As anyone who has a bank CD knows, interest rates are as low as they've ever been, so you can't make any money putting your savings in the bank. And both government and corporate bonds don't pay off very well either. The current yield on a five-year Treasury bond is a miserly 1.7 percent. The typical interest rate for a bond mutual fund is about 2.5 percent. Even with the current low levels of inflation these are losing propositions.

What can go wrong? There never is a time when there aren't clouds on the horizon. The question is whether they're storm clouds or fair weather clouds. Interest rates are currently low. If they start to heat up, then the higher rates could bring trouble for the markets. Generally, if inflation moves up a little, it does not dampen the markets. But if inflation floods into the economy, it could wash away a bull market in the blink of an eye. And some people worry about "reversion to the mean." The stock market is hitting new highs, and has been for a while. By some measures the market is trending above its long-term averages. A few forecasters are predicting that in the not-too-distant future the market will slide down to merge with its historical rate of growth.

Nobody knows what the future holds. What we do know is that the stock market jumps around, but over time it goes up more than it goes down, and that's how it makes your savings grow. So no matter what your age or employment status, you should always have some of your savings -- but never all of your savings -- riding the currents of the stock market.

Tom Sightings blogs at Sightings at 60 .

Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement and other concerns of baby boomers who realize that somehow they have grown up.