THIS MORNING YOU JOIN US WITH A TOPIC YOU KNOW WELL: THE STOCK MARKET. WHAT HAS PIQUED YOUR INTEREST THIS WEEK?
We are the verge of a record. The U.S. stock market could soon lay claim to being in the longest bull run in modern history. Barring a 20% market correction in the next 72 hours, Wednesday will see the bull market turns 3,453 days old, putting it one day beyond the bull run that started in October 1990 and ended with the bursting of the tech bubble in March 2000.
The current bull run began after the markets bottomed out on March 9, 2009 during the financial crisis. At that time, the S&P 500 fell to 666. Since then it climbed to a high of 2,872, in January, and still holds above 2,800, for a gain of 325 percent. The Dow Jones Industrial Average hit 6,443.27 on March 6, 2009, having lost over 54% of its value since the October 9, 2007 high. On Friday, it closed over 25,000.
THIS NEWS HAS THE POTENTIAL TO MAKE LISTENERS NERVOUS AND WANT TO GET OUT. SHOULD THEY?
Absolutely not. As I have said before, you should not try to time the market or make financial decisions due to anxiety. Instead, focus on your longer-term financial future. Just because we are in a record-breaking period of positive stock markets news, it does not mean that it is doomed to end any time soon. It will end eventually – you have heard me say that trees do not grow to the sky – but current economic indicators do not indicate trouble is on the horizon, and investors continue to believe there is room for this bull run to continue.
WHY ARE INVESTORS STILL BULLISH?
One of the biggest reasons is corporate profits. In fact, we just saw one of the best earnings seasons on record for American businesses. We have also seen healthy balance sheets across most sectors of the economy – this is not a bull run fueled by one or two sectors. In addition, the economy continues to get mileage out of last year’s tax cuts, which appear to be encouraging business and consumer spending. We know consumer spending is the driver of the economy, which grew at 4.1 percent last quarter, its fastest pace in four years. Together, these factors continue to push markets higher.
WHAT SHOULD EVERYDAY INVESTORS BE DOING AT THIS POINT, PARTICULARLY WHEN STOCKS ARE EXPENSIVE?
The best thing that you can do as investors is to keep contributing money to your 401k or other investments accounts every month. Called dollar cost averaging, this technique means you invest your money in equal portions, at regular intervals, regardless of the ups and downs in the market. Not only does this take the emotion out of the investing process, it prevents you from trying to time the market. Also, when you do this, you end up buying more shares of an investment when the share price is low and fewer shares when the share price is high, which often means you end up paying a lower average price per share over time.
WHAT WILL BRING THIS BULL RUN TO AN END?
No one knows. That is why we do not try to time the market! However, there are some things that could kill investor sentiment. As I have said, when the Fed hikes interest rates, it tends to dampen investor enthusiasm, especially if they are perceived to make borrowing overly expensive. The economy could take a turn for the worse if consumers close their wallets or if trade wars intensify. We could also see the global economy cause investors to be more cautious, as emerging markets like Turkey struggle. What we do know is that if you just continue to save and invest, you will be rewarded over the long-term, regardless of how long this run continues.
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