When we’re in the midst of a bull market, there tends to be less stress over stock prices. As opposed to times when the market goes down to lows and some people panic and sell in haste, bull markets tend to bring exuberance over stocks. Irrational exuberance, perhaps?
I’ve been noticing the market creep upward lately, and it’s been a steady climb. A little over a month ago I posted about stocks in February, and how it was worth thinking about how stocks had gone up lately. Additionally, when looking at historical stock returns by month, February wasn’t the best month.
Well, stocks didn’t follow that long-term trend. The S&P 500 went up 1.1% in February, continuing its trend of positive monthly gains. This was the 8 month out of the last 9 where stocks increased. The trend has thus far been continuing into March, with prices approaching record highs. The Dow has actually hit the record.
Anyway, back to the S&P. Take a look at the following graph of the S&P 500 over the last 10 years:
Look at where the market is now, on the far right. Consider how the market is reaching a second “peak” in the last decade. Things have been great with stocks over the last few years. However, do we think this will last forever? No, but do we think that prices will continue to steadily increase for an extended period of time?
Hard to say. I’m not a professional advisor, so I’m making a call. That being said, bull markets don’t last forever – just like market troughs don’t last forever either. Things seem to go in cycles, and there are many factors that come into play. Unemployment rates recently fell to a point where recent averages are at low point over the last 5 years. That might seem like a good sign that could boost investor confidence.
With such positive vibes all over, one should be happy. After all, most of us who have investments have seen them go up in value in recent years. After seeing declines back in 2008, this is really nice to see.
Is it good to think like a contrarian, and remember that things go in cycles? This cycle has been on the upswing for a quite a long time. It gets me wondering just how much this market has room to grow.
My Questions for You
What do you think of the shelf life of this bull market?
Do you often think that when things are going well for an extended period of time, it’s time to start wondering when the proverbial other shoe will drop?
Do you think about asset allocation, and possibly reducing exposure to stocks at times like this?
I think that the average investor should stay the course and ignore market fluctuations. There aren’t many people who can time the market successfully and I think it’s a fool’s errand. Read the latest Warren Buffett letter to see what he thinks of it.
Mr. 1500 – I’m more of an index fund type of investor myself, though I think that sometimes the market can overreact to certain situations. It seems to get up off the canvas after big downturns. Of course, this is the opposite.
I think modern investors must recognize that stocks prices since about 1995 have become characterized by extreme volatility–rapid climbs up steep peaks followed by sickening crashes. It’s happened twice since 2000. I don’t believe anyone has demonstrated that they can consistently predict stock prices, so my suggestion is first to evaluate whether your psyche and savings can weather the market’s new volatility. If the answer is ‘no,’ then perhaps you shouldn’t have much invested in stocks. If ‘yes,’ then I think it’s futile (and maddening) to try to time market peaks and troughs–might as well put on blinders and ride everything out.
Volatility is there, and there have been big swings in prices. I think that by rebalancing, one can minimize some risks.
There is no way I would be doing a buy and hold strategy in this market. The fundamentals for a recovery just aren’t that good. Trading the market with tight stops is the way to go.
I don’t think it is if you don’t know what you’re doing!!!