Defying Gravity

If you haven’t heard it in the news by now, I’d be willing to bet the thought has crossed your mind…

How can stocks keep going up from here?

Even though it’s a cardinal sin for someone in my shoes, I’ve had it, and it’s a fair question.  Stocks have been trading higher week-after-week, month-after-month.  The S&P 500 has already hit 30 all-time record highs this year, as low interest rates have pushed investors out of bonds and into stocks.

Charles Schwab CEO Walt Bettinger said retail clients have opened 719,000 new accounts so far in 2017 — the strongest first half growth since 2000 (a tell for retail risk appetite?).  Political tension and uncertainty definitely can be felt in the airwaves…Russian investigations, nukes in North Korea, President Trump’s Twitter feed…it’s never a dull moment.

By now, it seems relevant to ask the question: Can stocks keep defying gravity and continue higher?  Here’s the most straightforward answer you’ll ever get:  Nobody knows…period.  It’s that simple.

Investors have been trying to develop a formula to solve this problem for centuries.  Despite all the attempts, it hasn’t happened yet.  And I’m not holding my breath!  Predicting a top in the stock market is less about finding that magic mathematical formula and more about anticipating human emotion (market sentiment). Humans are predictable, right?

The truth is that markets (and economies) don’t operate on set schedules or chart the same path every time. You’ll often hear things like, “there’s a correction every 10 months,” or “there’s a recession every 4 years.”  Sure, mathematically that might be true on average, but bull markets can last for years and business cycles have lasted much longer than four years.  And there’s always the talking head on TV who says auto sales have peaked, tech stocks are at all-time highs, and banks are actually loaning money again — we’re doomed!  But you know what, even though it may rhyme, it’s usually something different that knocks the train off the tracks.

Again, you heard it from me — I honestly don’t know where stocks are going over the short term.  Not now, not ever.  A bear market could start tomorrow and the S&P could get cut in half, or stocks could go on to double and triple over the next 5-10 years.  I just don’t know.

Here’s what I do know…stocks are one of the best long-term investments available to public investors.  In the short-to-intermediate term, stocks do well if there’s money available to be invested (which I think there is) and that money wants to be invested.  Either way you cut it, I have confidence saying that money invested in stocks today will be worth more 10 to 20 years from now.

Market timing is a foolish money mistake and it involves two bad decisions — getting out and getting back in.  Neither professional nor retail investors have generated solid enough track records to change our minds.  One of the chief reasons you hire us is to not make these mistakes.  If the markets are causing you worry, then let’s have a discussion about your mix of stocks and bonds (asset allocation).  Our approach is to find a balance that works for you no matter what the markets are doing; we definitely don’t advocate jumping from one allocation to another based on emotion.



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