U.S. stocks rebounded on lower than expected jobless claims and strong corporate earnings reports.  More on jobless claims after the jump.

I’m going to cheat a little today and use some material from my weekly newsletter Market Minute.  In volatile markets such as these, it is easy to let emotions take control of your investment decisions.  If you find yourself struggling with the recent bout of volatility, take a step back and remember that investing is a long term game.  Victory (reaching your goals) is not determined in one week, month, or year.  The charts below show how the volatility of stock market returns is much lower in the long run.

As you can see, stocks are very volatile over a one-year period, but are much smoother over longer periods of time.  Compared to the one-year returns, the three-year returns deviate less from the average return (which is 6.6% after inflation and represented by the red line), and the 10-year returns hardly deviate from the average at all.

Sure, there are 10-year periods where returns are less than the long-term average and even negative on some rare occasions, but the point is to not let these short term fluctuations trick you into making a poor investment decision.  Instead, the recent downdraft should be viewed as an opportunity to rebalance your portfolio and not as an obstacle to reaching your goals.

Market Activity for August 11, 2011

Sector Activity for August 11, 2011

Jobless Claims

The Labor Department reported that initial jobless claims fell 7,000 last week to print at 395K (expected to come at 405K), and the prior week’s reading was revised up to 402K from 400K.  This is week may be the first time in 17 weeks that jobless claims fall below 400K, but claims are revised up the following week about 90% of the time so let’s not start celebrating yet.  Not that we should begin partying once claims drop below 400K, instead we need these claims to fall to 350-365K range in order to expect decent payroll growth.

The four week average, a less volatile measure of jobless claims, fell 405K.

Continuing claims fell for a second-straight week.  Standard claims (covering the first 26 weeks of joblessness) fell 60,000 to 3.69 million, while emergency claism (that extend out to 99 weeks) feel 16,000 to 3.7 million – these claims have been rapidly declining as benefits expire despite the fact that many of these people remain jobless.

Have a great weekend!

Peter Lazaroff, Investment Analyst

St. Louis, MO

Acropolis Investment Management