How Long Can This Last?
How long can this last? When is the next big one coming? These are the questions we, as financial advisors, are asked on nearly a daily basis. As we face heightened global economic uncertainty, negative interest rates, and growing populism the stock market has continued to rise in a dramatic fashion. When I first began thinking about this stock market update from the seat of a cramped airplane I was surprised again to see the Dow Jones Industrial Index reach a new record high of 21,115.55¹. This new record high occurred on 03/01/17 and although the market has pulled back somewhat since then there has been no shortage of record highs in recent months.
Back to the question at hand (How long can this last?). To be frank we do not know how much longer this bull market will last. We believe that stocks as a whole are a bit expensive based on valuations however there are several positive economic indicators that could contribute to continued growth. As most of you know by now FSG is not in the business of making big, bold, and direct predictions on the market so we will not be making a prediction for the end of this bull market. We do however believe that the market will continue to show volatility on a day to day and year to year basis. In our opinion this volatility is an inherent aspect investing in equities.
Do not take this view as an indication of FSG moving from our usual policy of not being market pickers. In fact we are simply stating is the markets have been volatile in the past and will quite likely be volatile in the future. If volatility sounds scary just remember 75% of years for the last 89 years the S&P 500 stock market index has experienced at least one 10% or greater pullback from intra year highs and the average pull back was 17%!² Despite this volatility markets over the long run have continued to grow averaging 10% for the last 89 years!(3)
Several members of the FSG team had the privilege recently of spending some time with the top financial advisors in the country for a conference in Palm Springs, California. In addition to being asked to share ideas and concepts with these advisors we had the opportunity to hear from some fantastically qualified and brilliant institutional asset managers such as Fidelity Institutional, Envestnet, Morningstar and several others. Having the opportunity to hear from these individuals on their opinions and philosophies of the market is truly astonishing. A completely plausible and understandable reaction from one “expert” presenter would be that stocks are extremely terrifying based simply on historical valuation let alone the massive geopolitical and economic headwinds we are facing. The next expert presenter could leave you feeling unequivocally optimistic because after all based on their data stocks are relatively cheap if you use inflation adjusted prices from the past decade and a half.
At FSG we have for quite some time felt that it is nearly impossible to predict where the market will take us over the next month, quarter, or year. Sitting in several back to back meetings with one credible expert after another contradict each other using the same facts (insert alternative facts) just reinforces our opinion that the clear majority of market pundits greatly overestimate their ability to predict and capitalize on short term market movements.
We do however believe that it is possible and prudent to make changes based on long term opportunities. This is a fundamentally different strategy then reacting to markets with fear or greed. We advocate making changes based on long term market trends and opportunities and are more importantly made by considering the impact on your personal financial plan which should be adaptive and fluid.
As always should you have any questions or concerns we at FSG are here to help, listen and guide. Thank you for your business and friendship.
- https://finance.yahoo.com/quote/%5EDJI/history?p=%5EDJI Dow Close on 03/01/2017
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.