Stock Market Full of Surprises This Week


What a week on the market!

We began the week worried about a default on U.S. debt, and even as we careened toward what could have been a disaster, the markets barely flinched. The Dow Jones Industrial Average slipped a bit on Tuesday as negotiations fell apart, but the drop didn't last long, and by the end of the week, the index was up 1%. The gains would have been even bigger if it weren't for a terrible earnings report from IBM, which weighs heavily on the Dow because it's a price-weighted index and IBM is a high-priced stock. The broader S&P500 may be a better indicator, and it was up 2.4% for the week.

The market's response to the week as a whole should teach us one lesson: You never know what the market is going to do, especially when the market's direction seems obvious.

Nothing is as it seems
It seemed logical that as we moved closer and closer to the debt limit that stock markets would panic and Treasury yields would rise. As a result, investors should sell stocks at a high point last week and buy back when markets panic this week, right?

^DJI Chart
^DJI Chart

^DJI data by YCharts

The problem is that markets never panicked despite being hours from default, and investors trying to time the market were left scratching their heads again. But this isn't a new revelation; investors trying to time the market have been on the wrong side of the road for years. The last debt-ceiling debacle didn't result in the crash some expected, the fiscal cliff didn't kill the market, and neither did the debt ceiling. In fact, investors who just bought a Dow Jones Industrial Average Index as we went over the fiscal cliff and just held it would be up nearly 20% this year.

^DJITR Chart
^DJITR Chart

^DJITR data by YCharts

The lesson here is that buy-and-hold is alive and well. It's probably a better move for you than trying to guess what the market will do on any given day or week.

Emerging industries are still emerging
The good news this week is that the economy is still humming along and earnings are looking pretty good as a whole. Google announced a 12% increase in revenue during the third quarter, and shares shot 14% higher on Friday. Net income was up an astonishing 36% to $2.97 billion, or $8.75 per share.

Chipotlereported an 18% rise in revenue, to $826.9 million, and a 15.3% jump in net income, to $83.4 million, and the stock jumped 16% on Friday. A 6.2% rise in comparable-store sales shows that the burrito chain is still commanding more customers per store and may even have room to raise prices.

The earnings reports from Google and Chipotle were important, because they show strength in the U.S. economy. If people weren't confient or making enough money to buy a $7 burrito, Chipotle wouldn't be doing so well. By the same token, businesses that advertise on Google are spending more money there, presumably because customers are going to spend more money at their businesses.

Heading into the debt ceiling, Google and Chipotle were two high-priced stocks you might have sold as well. Holding on for the ride would have been a better option.

The market hasn't panicked, and neither should you
You never know what the outcome of something like the debt-ceiling debate is going to be, and that's why The Motley Fool recommends buying great companies and holding on through the ride, no matter what the market does day-to-day. It's almost impossible to predict short-term movements in the stock market, especially when they seem obvious.

Boring is beautiful
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Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill and Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published