August has been a challenging month for the stock market, and investors are starting to get depressed.

It's a little crazy to think that a three-week dry spell like this can cause such panic. 

After all, the market has generated a 15.1% return so far this year, even after the August pullback. 

But I suppose our social media culture has bled into investor sentiment to the point where just a few weeks of losses can completely change how we feel about our investments.

Not to sound cavalier about losses (you know that I'm always mindful of protecting our wealth), but this change in perspective is actually a healthy thing for the market.

In fact, it's one of the three primary reasons I expect this pullback to reverse higher — and sooner rather than later!

Reason #1: Stretched Sentiment

Over the long term, stock prices tend to follow a company's fundamental metrics. 

Investors track earnings, assets, debt and other important financial statistics to come up with reasonable price targets.

But in the short term, prices are driven by investors’ buy and sell decisions. And these decisions are always influenced by the pressure of human nature. We just can't get away from it!

Investors sell when they're fearful and buy when they're greedy. And they send the market to extreme highs and lows based on these emotions.

After three weeks of weakness, investors are feeling especially pessimistic about the market. Some would even say fearful!

There are plenty of ways to measure these emotions. This week, several of the key gauges I pay attention to have moved into fear territory. 

Just take a look at the CNN Fear and Greed Index chart below

Fear causes people to sell their stocks. And the more fearful investors become, the fewer shares are left to sell!

In situations like this, only the most confident investors are left holding shares. And many of these shares are bought at very attractive "fire-sale" prices thanks to the fearful sellers.

Basically, the fear versus greed indicators are now signaling that fearful traders may be capitulating. 

And once they stop selling, stocks will be free to continue the bull market we started earlier this year.

Reason #2: Extended Bond Yields

I'm sure you've noticed interest rates are moving higher. This is true for savings accounts, money market funds, mortgage rates, and Treasury bonds.

Higher yields tend to drive stock prices lower, especially stocks in the “high growth and low earnings” category. 

That's because these growth stocks don't currently generate enough cash. 

And when Treasury bonds are paying high yields today, it's often a better decision to lock in those higher guaranteed Treasury rates.

There are other headwinds that higher yields create too. Cost of capital, customer's ability to spend, and overall economic weakness also play in to the situation.

The rule of thumb is that high interest rates suck capital out of stocks. So the current era of "higher for longer" rates has been a headwind for stocks.

But what happens if this trend turns?

Bonds have been a headwind for stocks. Now that bonds are oversold and rates are hitting multi-year highs, that trend is likely to change.

After all, higher yields naturally attract buyers for Treasury bonds. As more buyers enter the bond market, prices will naturally high (pushing yields lower). 

And any pullback in yields is likely to reignite the bull market.

To summarize, bonds are oversold. They offer investors safety and value. And bond buying will relieve pressure on U.S. stocks.

Reason #3: Soft Landing

Let me start by saying I hate the term "soft landing.”

As a private pilot, I've made dozens of soft landings, hard landings, bumpy landings and even aborted landings. But what does all of this have to do with your retirement investments?

When economists talk about a soft landing, they're essentially projecting that the economy will slow down, but not in a way that leads to catastrophic results. 

For a while, many investors thought the U.S. economy was headed for a protracted recession... quarter after quarter of negative growth... job losses, evictions, business failures and more...

But that's simply not the way things are playing out — at least not yet!

We just wrapped up the traditional second-quarter earnings season and learned that businesses are continuing to grow profits.

The job market is holding up well, and there are still too many job openings and not enough workers to fill the empty slots.

Sure, there are signs of stress in certain areas of the market. 

Office real estate may be challenged. And government debt levels are simply unsustainable and will have to be reckoned with eventually.

But the current picture for the overall economy is still very healthy. And that health should keep earnings rising, boost investor confidence, and drive fundamental gains in the stock market.

Heck, we might even avoid a landing entirely and keep gaining altitude as the economy expands.

Please don't let a few weeks of pullback discourage you. More importantly, don't let emotions like fear or greed influence your decisions. 

We've got plenty of opportunities to grow your retirement wealth!