This week capped the longest bull market in the history of the Standard and Poors 500 Index. Technically, a bull market is the period that starts at the bottom of the previous bear market (a drop of at least 20%) and continues moving up without a new bear market drop of 20%. In the current case, the bull market has gone for 3,453 days.¹
In that span of time, the S&P 500, not counting dividends, grew by an impressive 321%. It’s not the strongest rally in history (from October 1990 through March 2000 the market gained 417%), but it’s still very respectable.²
The lowest previous point in the market was March 9, 2009, the end of the Great Recession, so-called because it was the worst recession since the Great Depression. It may seem distant now, but at the time, the future of the U.S. economic system was in doubt. Two of the major brokerage houses, Bear Stearns and Lehman Brothers, went under. Merrill Lynch was forced into a sale. Hundreds of thousands of Americans lost their homes and savings.
In the depths of the recession, no one would have guessed that this tragedy would be followed by a buoyant period in which U.S. stocks would quadruple in value. Tech companies, like Apple, Amazon, and Google parent Alphabet, have led the charge, becoming dominant business powerhouses. One of the current largest players in technology, Facebook, didn’t even enter the market until 2012.³
On the other hand, the news on the political front is not very comforting. Trump’s former campaign manager, Paul Manafort, was convicted by a jury on eight charges. His personal attorney, Michael Cohen, pled guilty on eight criminal charges, including campaign finance violations. Allen Pecker, publisher of the National Enquirer, under protection of immunity, corroborated that Trump knew about the hush-money payments. Finally, the Trump Organization’s financial gatekeeper, Allen Weisselberg, has also been granted immunity in testimony before a federal grand jury. By all accounts, Weisselberg “knows where all the bodies are buried.”⁴ All this is happening just a few months before the midterm elections. Midterms often upset the balance of power in government and damage a sitting President. This election could be monumental, and could cause additional volatility in the stock market.
If you’re an investor, it would be natural to feel some unease sitting at the top of the market. Does this mean it’s going to be all downhill from here? Is it time to get out of the market? In reality, the length of a market upturn is not a good indicator for a market downturn. Better warning signs are declining corporate profits and revenue, high inflation, and a struggling economy. None of this is occurring right now, and few economists expect a recession soon.
Nevertheless, if you’re a cautious investor, you might be feeling that you want to hedge your bets. If you are, it’s generally better to make small, gradual and reversible steps in your investment strategy rather than large, dramatic ones that you might regret later.
For example, if you’re approaching retirement, you might want to increase the proportion of fixed income (bonds) in your asset allocation. This tends to create more stability in your investment, and enhance downside protection.
If you have some extra cash that you’re hesitating to put into the market, but you have a remaining mortgage balance, you might want to utilize the cash to pay down your mortgage. You’ll save on mortgage interest at zero risk.
You might use Dollar Cost Averaging, an investing strategy that is very effective when the market is volatile. Instead of investing a large, lump sum all at once, break it up into smaller pieces and invest it in equal amounts gradually: monthly, quarterly or semi-annually. If the market is down, your money will buy more shares. If the market is up, you will be buying fewer shares. Statistically, this will give you a better rate of return.
Whatever you decide to do, it’s wise to get professional advice. Talk to your estate planning attorney, CPA, or Certified Financial Planner™ for a second opinion on whether your strategy is appropriate for your circumstances and goals.
¹ Business Insider 8/2018
² Bloomberg.com 8/23/2018
³ Wall Street Journal 8/22/2018
⁴ Chicago Tribune 8/22/2018