On the surface, there's not a lot for investors to be happy about this July 4. To quote correspondent Suzanne Pratt, it was a "horrible" first half of the year for stocks -- with the DJIA, S&P 500 and NASDAQ composite indices all down by double-digits. June offered few signs of hope, with the Dow dropping more than in any month since 1930. Unless you were invested in oil, commodities or the Brazilian market, chances are you lost money.

I won't go into the reasons here (if you're interested, tune into our July 4 holiday special), but clearly, people are getting scared about putting money into stocks. You can see that in the slowing of inflows to mutual funds and from reports that workers are starting to reduce their contributions to 401(k) funds. We recently put together a segment for our retirement series where several financial advisors said that retirees need to keep some money in stocks in order to keep pace with inflation. In light of the current market, I'm expecting lots of e-mails from viewers asking how we can present such "irresponsible" advice!

But old Wall Street observers like me know that bear markets don't last forever. Over the past 80 years, the average one has lasted 16 months (my memory doesn't go back that far, but that tidbit comes from Jim Stack of InvesTech Research). If the current bear market is typical, that means we may have to endure another 6 months of market declines. But then stock prices should start going up again. (And Market Monitor Bob Drach is convinced that the conditions are coming into place for a huge bull market like the one that began in 1991!)

Looking again to history, the worst thing for an investor to do at a time like this is panic and head for the exit doors. We recently checked with Ibbotson Associates (a subsidiary of Morningstar) to see if the conventional wisdom that stocks outperform other investments still holds true. Well, the numbers don’t leave much doubt: between 1926 and 2007, the average annual gain for large-cap stocks (S&P 500) was 10.3%, and small-cap stocks did even better, with a 12.4% annual gain. (Those are about double the average returns for bonds). It would take a lot more drops like those of the last six months to make a big difference in that record.

And here’s another comforting thought: Jim Stack tells us that over the past 80 years, the stock market has gone down more than 2% between July and Election Day in only one Presidential Election year. So at least on Wall Street,
maybe there is some truth to the aphorism that “it’s always darkest before the dawn!”