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Market at All-Time Highs: Now What?

Thursday, August 31, 2017

by Sheila Jamison and Rich Jamison

The DJIA, S&P 500 and NASDAQ composite reached a series of new highs over the last month ... and it’s made some investors nervous.

Bears say the market has nowhere to go so it must drop in a correction (correction is the term for a pullback of at least 10%) and it will probably do so very soon.

Bulls counter that although markets always correct, they do so eventually. However, “eventually” is the error in the bear’s story as “eventually” can be quite a while. They support their case by showing that if markets went into corrections right after new highs, many past bull markets would never have existed. They point out that it has been normal historically for a series of new highs to occur over an extended period in bull markets before they correct.

Neither “very soon” nor “quite a while” are defined by their proponents.

Is Any Clarification Out There?

You could turn to the media, print and/or on-air. After all, isn’t it their job to keep people informed? Seems so as they trot out numerous bulls and numerous bears to debate what will happen from here. Their arguments, which were summarized earlier, only reinforce the dilemma.

So where does that leave you? In short, no matter which side you believe, if the other one is right, it will cost you money.

• If you believe the bulls and the bears turn out to be right, you lose value as you see your portfolio fall. Value you had goes away.

• If you believe bears and the bulls turn out to be right, you lose value as your portfolio goes nowhere while the market makes additional new highs. Value you could have had never materializes.

You’ll likely find this less frustrating – although not much less so – by remembering the media’s foremost goal is not providing answers, solutions or help in general. Its number one job is to attract as many eyeballs as possible to get higher advertising rates. This means keeping people’s attention. What better way than with a good fight?

Our Suggestion

We’ve discussed our philosophy on not predicting the markets with you many times. That holds in this current situation too. How, then, do we approach overbought markets that may become much more overbought or that may turn down suddenly?

We offer a “mea culpa” if you don’t recall this already. Because it’s become such “second nature” to us, we sometimes forget that you’re not doing this every day the way we are. Monday, we received a call from a very intelligent client asking us about this. That snapped us back into reality (and this is our thank you to him for that). We need to keep you up to date in good markets as well as in iffy or bad markets. Here it is ‘in a nutshell’ as Rich loves to say.

We don’t know how long the markets will continue to climb and make new highs. We don’t know if it will run sideways (consolidate) for some period of time and then take off again to new highs. And, as you’ve deduced, we don’t know if it will stall here and go into a pullback … or how severe a pullback that might be if it does pull back.

Our Answer

In short, watch the markets to see what the markets do. Act accordingly.

If it continues to climb broadly, ride the tide.

If we see consolidation, move into and ride the winning classes and sectors.

If it begins a pullback, be ready to

a) Cull the weaklings (that laggards that may be working for us now but not as robustly as other holdings)

b) Sell the big gainers if they stagger to protect the profits

c) Hold the money from “a” and “b” to grab the bargains that likely appear once the markets begin going back up again (called ‘keeping our powder dry’)

We can’t tell you what the market will do. As you’ve gleaned from the experts arguing both sides of that question, nobody knows what the market will do.

Our stance is to be ready to act when the market tells us what it is doing. In the current situation, it means keeping our trigger finger ready as it may call for a quick response.

Please give us a call to talk about your specific situation. We’re always here to serve you.

Sources: 
The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; BBC News; The Associated Press; Reuters.com; Crain’s New York Business; MFS research; CNBC’s Power Lunch & Squawk Box programs; the New York Times; MarketWatch.com; the Financial Times.com; Briefing.com; BusinessWeek.com

The data above were taken from sources deemed reliable. However, no guarantee can be made as to their completeness and accuracy.
Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities, whenever mentioned, are for illustrative purposes only and may not be relied upon as investment advice.
All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.
Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.
Past performance is no guarantee of future results.

© 2017 Jamison Financial Group. Please feel free to distribute copies to individuals you feel may benefit from the information.