Economics, Investing

All-Time Market Highs: A Great Time for a Reminder

Exactly one month ago the fate of the United States was being decided, and initially the U.S. markets were pissed. The overnight futures signaled a bloodbath in the markets at the open; it was so negative, I did something I never do: I wrote a post in response to short term market activity. But then the unthinkable happened–the futures recovered, and the markets actually ended the next day in the green. Since then, much to everyone’s chagrin, the markets have not looked back. The Dow is up a little over 7%, the S&P 500 is up a little over 5%, and the Nasdaq is lagging, up a little over 4%…not bad for one month returns.


So, now that we are sitting at all-time highs in the markets, I want to remind readers (and clients) that it is natural for markets to have pullbacks, corrections, and to consolidate. Playing the roll of Debbie Downer is not normal for me–I always take the optimistic view on things. However, I can already see the headlines and CNBC segments once this run begins to cool down…something clever like “Trump Rally Becomes the Trump Dump” to incite investor fear to drive ratings.

Market pullbacks and corrections are a normal part of investing, and not every pullback, or correction, leads to 2008-like markets. Below is a chart from the 3rd Quarter J.P. Morgan Guide To The Markets that shows over 30 years of annual returns and the intra-year declines; what you see is the S&P 500’s annual return in gray, along with the largest decline experienced in that year in red. Please notice that each year has a red number, including the best years. screen-shot-2016-12-08-at-1-55-54-pm

Markets cannot always go up, and we only need to look back eleven months to the beginning of 2016. Doom and gloom were in store for 2016, as the markets tanked right out of the gate. Take a quick read of Phil Huber’s blog post (link below) that highlights some of the predictions and headlines from the beginning of the year, and remember we sit at all-time highs right now.

It’s important to note that I am not predicting the rally to come to an end–in fact, I think there is a good chance that it continues into the New Year. My hope is to get ahead of the curve to remind you that the rally will fizzle, and not to panic at the first sight of a decline. In the meantime, enjoy the upcoming holiday and use the current rally as an opportunity to revisit your investment strategy to make sure you are in a portfolio that matches your risk tolerance, financial plan, and long term investment strategy–it’s better to do it now, rather than wait for a correction to occur.

Mentioned Reading:

Phil Huber-BPS and Pieces: (Prediction) Seasons Greetings!


Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.