Widely considered the most successful long-term investor of the past century, Warren Buffett consistently stressed the importance of investing in a good company over an economic forecast. Buffett is the speaker of famous quotes such as, “Only buy something that you’d be perfectly happy to hold if the market shut down for ten years,” as displayed on Rule One Investing. The business magnate often talks about how it is impossible to predict the market; instead he repeats the message: just invest in great companies for the long term. So long as the U.S. economy remains the way it has for the past hundred years, you should be profitable.

This strategy has evidently paid immense wealth to Buffet, but in today’s shaken economy, can everyday people justifiablytrust someone’s word? Is there not a better time to buy?

With so many convoluted headlines, it is perfectly understandable if you are confused. “Breaking news” headlines appear almost every day. The Wall Street Journal publishes headlines such as “What CEO’s are Saying: ‘The Consumer is under pressure,’” and “The Decline of the Nice-to-Have Economy,” which can stir fear. On the other hand, Investor’s Business Daily piece, “Why This May Be A ‘Life Changing’ Market Rally” can inspire confidence. Prominent investors, swing traders and executives tell us contradicting predictions of economic sea changes destined to take the U.S. economy to new lows or of bullish sentiment spurred by decreasing inflation and an already beaten stock market. Where lies the line between truth and fiction? I want to trust Buffet, but the constant doom-calling should first be dispelled for the average investor or worker who wishes to retire one day. After all, if you put money in the S&P 500 two or three years ago, you might still be in the negative by over 25%. Justifiably, the ordinary investor who normally would buy the S&P 500 to add to a savings fund might hesitate to invest. I have learned from Buffett that you must never time the market. However, Buffett has never advocated against buying stocks when they dip and selling when they are high; every seasoned investor or trader has price targets.

Consumer spending is decreasing, and economic confidence is waning to levels not seen since the 2007-9 recession: “the party is ending,” claims The Wall Street Journal. However, are these pessimistic predictions really warranted? For example, the company finances of Amazon have nearly quadrupled gross profit (revenue minus business costs) between 2018 and 2022. Yet, the current stock price is only roughly 25% higher than it was at the end of 2018, according to data supplied by Yahoo! Finance. The stock price by no means reflects a company’s fair value— the stock market reflects investor projected value minus unpredictable drops or jumps resulting from short-term overselling or overbuying. It is a reliable indicator of how much wealth the companies have at their disposal and overall company confidence. Still, despite relatively low quarterly earnings reports and predictions almost across the board, stocks remain bullish this month, with the S&P 500 yielding a 7.6% return. So, does this mean market sentiment is bullish? 

According to the conventional definition of two consecutive quarters of negative GDP growth, we just came out of a recession that took place in the summer of 2022. However, according to some reports, such as those from the National Bureau of Economic Research (NBER), despite the lingering COVID-19 supply chain issues and the inflation caused by lower interest rates to rebound the economy after COVID-19, we were not in a recession. Because the negative economic decline was not low enough or long enough and was greatly self-inflicted by the Federal Reserve System, interest rates used to hamper inflation. Employment was high, which is not a usual signal of a recession. Additionally, corporate earnings reports were promising. Despite this hiccup, the year ended relatively strong, with a fourth-quarter GDP growth of 2.9 percent, according to NPR. Unfortunately, the year average ended with a relatively weak 1 percent compared to the historical U.S. average of 3.13 percent. 

Today, the most recent inflation metric shows inflation is still almost double the U.S. year-on-year average but has decreased to levels seen one year ago and indicates a clear downward trend, as Trading Economics displays. There is likely to be a correction to the recent bullish spike, but by no means does this indicate a bearish trend; market corrections are healthy regular occurrences and can be taken advantage of to get into the market for a bullish trend. The “January effect” has long been studied and shown that the market has historically performed better in January than in any other month. This is believed to be the case for a variety of reasons, such as tax-loss harvesting, which is the selling of losing stocks so that capital gains would drop before taxes are due. Still, according to Investopedia, since people have noticed this trend and have tried to capitalize on it, the stock market has corrected this effect, so in the past 30 years, only about 57 percent of Januaries have been positive. So, despite the many articles you may see about how January’s rally was simply the result of the January effect, this is likely not the case. If we analyze the positive aspects of our economy, we would see that the job market is still strong. We see historic unemployment lows, inflation decreasing and the recent reversal that brought the Nasdaq-100 above the 200-day moving average, breaking through a resistance point at about 10,900 points, according to FXSTREET.

Nevertheless, a correction is almost inevitable with such a significant uptick and an unstable consumer spending environment. The January spike does not appear to be a coincidence and seems to be the result of an oversold market. But with underwhelming earning reports this month, markets do not appear strong enough for this to be a cut-and-dry bull run. Whatever the case, there are signs of a correction soon, and that is when one should make an educated decision on whether to buy undervalued stocks. The market is a risky business, but one thing is certain, Warren Buffett’s long-term strategy is unquestionable if the U.S. economy is as resilient as it has been for the past one hundred years.