Stocks: 1 Reassuring Thought for Independence Day

Stocks: 1 Reassuring Thought for Independence Day

U.S. stocks finished a shortened pre-holiday session roughly unchanged, as the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average rose 0.1% and 0.4%, respectively.

Consistent with those small gains, the CBOE Volatility Index (VIX) , Wall Street's "fear index," fell just 1.5% to close at 16.20. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)

Does Friday matter?
Friday is a bit anomalous, falling as it is does between a national holiday and the weekend. Some commentators appear to think that could contribute to producing a volatile session. Yahoo! Finance's esteemed Michael Santoli highlights one precedent:

The last time this occurred was more than a decade ago, as the tech bust bear market was teasing and torturing investors. July 5, 2002, the Standard & Poor's 500 shot up by 3.6%. Interestingly (and probably meaninglessly) the July 5, 2002, close proved the market's high point for the next 11 months, at which time the mid-2000s bull market got rolling.

Clearly, this doesn't happen all too often, so perhaps it's not worth drawing any conclusions on that basis. Still, this calendar oddity isn't the only factor to suggest we could witness a little bit of action on Friday. Let's not forget that it's "employment Friday" -- the Bureau of Labor Statistics will release its June employment report at 8:30 a.m. ET. That's an indicator that stock market professionals track every month, but it will be even more closely watched on Friday, as it constitutes the most important economic release since the Federal Reserve outlined its guidelines for reducing its monthly bond purchases ("quantitative easing") at last month's Federal Open Market Committee meeting.

Fed Chairman Ben Bernanke took great pains to emphasize that the timing of the rollback of the central bank's bond-buying program is contingent on the economy. At present, the Fed expects to begin "tapering" this year before ending the purchases entirely somewhere around the middle of next year.

If all of this sounds a bit like inside baseball, the truth of the matter is that it is. Yes, we could be in for a little bit of volatility the day after next, but so what? Does that prospect make you nervous? What if we do get some volatility? Are you going to adjust your portfolio on that basis alone? If so, you're probably giving up what my colleague Morgan Housel calls your last remaining edge on Wall Street: a lengthy (i.e., equity-appropriate) time horizon.

Enjoy your Fourth of July holiday, and consider extending the holiday through the weekend when it comes to checking market news or your portfolio. You may avoid some unnecessary stress, and it won't make a bit of difference to your long-term returns.

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