Dow 20K and Beyond – Keep Your Brain in the Game

“The underlying principles of sound investing should not alter from decade to decade, but the application of these principles must be adapted to changes in the financial mechanisms & climate.” -Ben Graham

Now in the eighth year of a record-setting bull market run since the low on March 9th of 2009, investors are getting skittish with the Dow Jones Index (DJIA) up past the big round 20K milestone.

Many people are putting on their tin-foil hats while big bears are coming out of hibernation this summer looking around for a “June Swoon” to a “yuge” 20%-40% correction that may never happen this year.

The 20K Dow milestone should not appear as an ominous warning sign with the bull market finally being fueled more by fundamentals and less by the Fed’s “easy money” policies, the Trump “honeymoon phase” or by “animal spirits.”

Jon here. Investors who panicked over the Dow passing a big- round number and capitulating over bear market predictions are as mindless as the people who over-reacted to the “Y2K” computer virus threat before the calendar hit the year 2000.

Many of those who “sat out” the past eight-year market accession may still be scratching their heads at the 250%+ climb of one of the “most hated” bull-runs of all time.

Consider that past ‎Bull markets ended by recession (1990), a credit crisis (2007) or huge equity overvaluation (1987,2000.) While there do not appear to be any big-bear market triggering events on the table for the next year, increased volatility should be expected as we are more than half way through the current economic cycle.

With a low probability of a recession on the radar for 2017, we are telling clients that any pullbacks are a good opportunity to invest a windfall or to continue dollar cost averaging into their employer 401K and other investment personal accounts.

All the brokers coming back out of the woodwork selling doom and gloom alternative, insurance and other hedging products need to chill out a bit. Interest rates are at a historical low, corporate profits, inflation and wages are gravitating up, the economy is improving and valuations, while a bit frothy, should allow for more “new highs” in the months ahead.

Regardless of political affiliations and brutal opinions, many investors appear to be cautiously optimistic regarding the markets and their investment performance for the 2nd half of 2017 and beyond. GDP numbers have not been impressive but US earnings growth may be at its best since late 2011 if you are keeping score for the first quarter of 2017.

While there are many “black swan” and other unknown events that can keep you up at night- from a possible war with North Korea, China’s economy falling of a fiscal cliff or the possible impeachment of “The Donald,” many of these events may not cause a domino effect to throw Wall Street and the US economy into a tail-spin.

Consider that in 1998 then President Clinton was impeached for getting caught with something in his hands and the U.S. markets still managed to catapult up in 1999.

In general, our clients appear less concerned about high market valuations and more cautious about Trump’s economic policies and the words that are coming out of his mouth.

Since World War ll, the Dow Jones Index (DJIA) has grown approximately 9%-10% per year over time. If the law of averages keep up, don’t be surprised if the Dow doubles and passes 40K over the next decade.

The greater the number of the Dow, the less time it will take to pass another 500 to thousand-point mile-marker. At the same time a 500-point drop is only a “blip” on the radar screen today opposed to going back in time to “Black Monday.”

On Monday, October 19, 1987 the Dow fell 508 points in one day to 1,738.74 (22.61%). Today you would need more than a 4,800 point drop in one day to top that.

The most important lesson for investors to is to focus on your own underlying principles. Do not get thrown off-course by real (or fake) financial news from pundits who pontificate for hours on end regarding what ‘could’ happen next.

Investor sentiment and market fundamentals drive stock prices over time like riding a tandem bicycle. The madness of the crowd, or crowd psychology in the short term, is less rational overtime than the markets themselves.

If you do not have a wealth process or plan in place, now would be a good time to work with a accredited advisor to see if your investments match up to your risk tolerance and expectations.

For more information on our firm or to request a complementary consultation please email [email protected] or call (561) 210-7887 to get started today.  

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indices are unmanaged and may not be invested into directly.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors. No strategy assures a profit or protects against a loss.