Anniversaries are special occasions often celebrated with champagne and regarded as a time to reflect on the past and as an opportunity to plan for the future. This anniversary makes for a delightful reflection on the recent past, and if I can be persuasive, presents a golden opportunity to motivate a constructive view of the future.
The anniversary I’m referring to is the date this bull market lurched from lows to all-time highs! Yes, the bull market is going to be nine years old on March 9, 2018! It was on the close of business that Friday nine years ago that the stock market ended the day with the Dow Jones Industrial average closing at 6,507 points and the S&P 500 at 676 points.
Wow! We’ve come a long way since then. In fact, as of this writing, the DOW is approximately 20,000 points higher and the S&P 500 is about 2,180 points higher. So, without question we’ve witnessed extraordinary market gains in what is now the second longest bull market run in history. Of course, past performance is no guarantee of future performance. What more could we ask for?
It can be said that stock markets move in mysterious ways, as John Maynard Keynes used the term “animal spirits,” in his 1936 The General Theory of Employment, Interest, and Money, to explain how human emotion can affect investor and consumer decision making— especially when herd mentality sets in.
The reason I revert to academics from more than 80 years ago is that we all know history has a tendency to repeat itself. Market exuberance, record stock market prices, and as we saw in the month of January alone, at least 14 all-time high levels achieved in the S&P 500—the most since 1955. An exercise worth your time may be to review your portfolio. You might be surprised how much certain positions may be worth due to many consistent years of stock market growth.
But, amidst all the glory and excitement of these new market highs, there is also the news that while Americans are consuming at breakneck pace, buying cars, trucks and fidget spinners, they’ve also in aggregate reduced their savings rate to a 12-year low. That’s bothersome. This may not be as apparent here in Malibu or the Pacific Palisades, but it is a reflection of what’s happening across the nation.
So the wealth effect is in full swing, and households are spending as they see their net worth climb. Between housing, 401Ks, rental properties and other investment accounts appreciating, along with lower interest rates, it’s easy to see that there’s not a lot of motivation to curtail consumption. But, when economic conditions change, they can do so fast. So, in an effort to protect, preserve and maximize some of the wealth you’ve accumulated, it may be a fine time to examine the portfolio and keep it consistent with your goals and objectives.
Let’s take a 2018 adaptation of Keynes’ “animal spirits” and be reminded that, while as of this draft on January 29, we continue to witness low unemployment (meaning everyone who wants a job has a job), and consumer spending at 2011 levels (people feeling confident in the economy making them inclined to spend). Tax rates are being reduced, and deregulation in business have also contributed to the feeling that markets may be “priced to perfection”. If they are, it makes me wonder what will continue to drive them higher and which way the herd will move next.
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