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It would be great if stock markets always moved up and to the right. But all pieces of the economic puzzle—including stock markets—run in cycles. Sometimes markets go up, and sometimes markets go down. Why does this happen, and how might it affect your financial goals?

A variety of factors influence the stock markets.

Although stock markets like the Dow Jones get the lion’s share of daily attention, there are in fact hundreds of different markets, made up of a collection of different types of stocks from different types of companies. The value of those companies rises and falls based on a number of factors such as revenue, expenses, and sales projections, to name just a few.

Markets also go up and down based on economic news. Sometimes stock markets go down in ways that make sense—big layoffs, for example. But sometimes it can seem like headlines are completely out of sync with what the markets are doing.

Stock markets aren’t the only numbers that financial experts pay attention to—or that matter to you and the health of the economy. Some of those numbers, such as unemployment, may be ones that you’re familiar with. Others, you may never have heard of.

The CBOE Volatility Index, for example, is something that Heather Winston, financial professional and product director in retirement and income solutions at Principal^® , checks in on regularly. It's a measure of the expectation of near-term—i.e., the next 30 days—volatility and is one way of understanding how investors may feel. In general, the lower it goes, the better the S&P 500 usually performs.

That’s why Winston suggests reviewing different sources of reliable information if you watch the stock market go up or down. “Risks are always going to exist, but we may better set ourselves up for success by thoughtfully responding to challenges or news as it comes,” she says.

Not all stock market ups and downs look the same.

In 2007, the stock market fell, and kept falling, signaling the Great Recession and tumbling 51% in 1.3 years. It finally rumbled to life again in March 2009, a climb that didn’t really stop until February 2020. The total gains over those 11 years of growth: 409%.¹

Those are just two data points over the long, varied history of the stock market. In general, stock markets go up for longer periods of time and with stronger growth compared to times when stock markets go down.

“Think of it like this: When a period of growth or contraction in the stock market ends, you don’t really know it ended until well after the fact,” Winston says. “No one can necessarily predict how profound it will be, when exactly it will show up, and when it’s going to go away. The reality is, cycles happen, the market ebbs and flows.”

If you condition yourself to jump in (or jump out) of markets every time there’s a period of change, you may be putting yourself at financial risk, especially if you’re a younger investor. That’s because those gains may be a missed opportunity to grow your savings through the advantage of compound interest.

Daily stock market ups and downs may not be all that meaningful.

What stock markets are doing right now is just a click away; you can watch the tickers all day, every day. The real question is: Should you?

“Today's news, and how we are inundated with messaging all the time, has some people reacting quickly—and sometimes a bit emotionally—to movement in the stock market,” Winston says. “It’s OK to step back.

“You don’t have to give everything your attention equally. What you can determine is the news’ proximity to your choices: If it won’t change anything about your plans and goals, it may not matter for the moment.”

For example, let’s say you’re close to retirement. Daily market fluctuations may be more concerning to you, especially if you may need to access retirement savings sooner. In that case, a check-in with a financial professional helps you review if your accounts are diversified and match your risk profile and planned post-work date. You may also need to reevaluate if you can retire as planned or need to put more away in savings. (Get more investing tips specific for near retirees.)

If you’re a younger investor with more time, on the other hand, daily market ups and downs are less concerning. For you, it’s time in the market, not timing the market, that matters most. (This real-world case study of market gains demonstrates that.)

“How the economy translates into action depends on your needs and wants, but looking back is a good way of reminding ourselves that what’s happening now won’t always be so,” Winston says. “Things do turn around.”

“If I had told someone in the 1990s to just hang on for 20 years to their diversified investment portfolio and they’d experience unprecedented growth, they wouldn’t have believed me,” Winston says. “There aren’t any guarantees, but we have had growth in the markets and stability in low interest rates for a very long time.”