In the near-term, momentum and news flow are what most determines moves in stocks.  However, in the long-term, i.e. a generation, valuation matters most.

From EconomPic

Over many decades, equity returns track earnings growth.  But earnings can grow while stock prices can stagnate or fall over a decade or longer.

Over time, profits have grown at the rate of nominal GDP growth, or about 6% per year.  Of course, profits do not grow consistently.  At times, earnings growth lags economic growth, while at others, it leads the economy.  However, the trend rises around the rate of growth in GDP.

As you can see in the above chart, there has been tremendous variation in economic growth and equity returns.  This is primarily because of valuation at the specific end dates.  Generally, when valuations are high, equity returns over the next decade are low.  Conversely, when valuations are low, equity returns are high.

I am not a believer in buy and hold all the time.  I think the financial industry does a disservice to its customers by recommending investors always hold stocks.  If you are in your early 20s, you can start buying stocks for retirement even at expensive valuations.  However, most people do not start saving substantial sums of income until they are in their 40s or even later.  If someone was 45 and began buying stocks in 1994, expecting stocks to compound at the long-term rate of growth (10%) and hoping to retire this year at 60, she has almost certainly failed to meet her investment goals.  Even over 15 years, stocks can be a losing, or at least a disappointing proposition.

Instead, long-term investors should focus on valuation.  When stocks are expensive, long-term investors should sell.  When stocks are cheap, long-term investors should buy.

Today, investors should be buying stocks for the next decade or two.  All the recent talk about buy-and-hold being dead are exactly wrong.  Now is the best time in generations to buy stocks and hold them for many years. 

Stocks are very cheap.  That is when stocks should be bought.