The current bull market of 3,453 days is now the longest on record, exceeding the bull run from 1990 to 2000. Since the lows of March 2009 through mid-August 2018, the S&P is up over 300%, the Dow is up over 250% and the Nasdaq is up 450%.
The best performing sectors, according to the Wall Street Journal, have been consumer discretionary (+622%), information technology (+540%), and financials (+461%).
The big question now is, can the bull keep running?
There are a lot of positives in the markets. Unemployment is down, consumer spending is up, and companies are reporting strong profits. Both interest rates and inflation are at low levels, which is good for the markets.
But there are also a few negatives. Growth in China is slowing, trade tariffs are increasing, and the Federal Reserve is gradually increasing interest rates.
A red flag is that stock valuations are high. The S&P 500 trades at around 18 times projected earnings, which is well above its historic average. High valuations by themselves, however, do not generally choke off a bull market.
So, what should you do with your money?
- Don’t rush to put new money to work at these valuations. Buy-low/sell high is the key to successful investing. Those who bought at the lows in March 2009 have been well-rewarded. Those who buy now may not be as fortunate.
- Take some money off the table if you are close to a major life event (retirement, college education, buying a house, etc.) and need your funds near-term.
- Be honest about your comfort level with risk. Stocks offer more potential upside than bonds, but more downside risk. Looking at performance from 1926 through 2017, a 100% stock portfolio had its best year in 1933, with a return of 54%. The worst year was 1931, when it lost 43% of its value. The best year for a 100% bond portfolio was 1982, with a return of 33%. The worst year was 1969, when it lost 8% (data from Vanguard). Remember that bond prices go up when interest rates go down. Since interest rates have been low and are currently rising, it is unlikely that bonds have strong upside at this point.
- Check your portfolio allocation. A mid-twenties investor with a strong appetite for risk may want 85%+ of her portfolio in stocks, since she has plenty of earning years to replace investment losses from a volatile market. Those approaching retirement need to be much more cautious, however. A more balanced mix might be equity positions of 60% or less. Your financial advisor can help you find the mix that’s right for you.