How rising interest rates are affecting the markets

by | Oct 11, 2018 | Learning

It’s October, which means autumn is upon us. But this year, it’s not just the leaves that are falling. The markets have been falling, too. On Wednesday, October 10, the Dow slid more than 800 points. The S&P 500 fell for the fifth straight day. And the tech-heavy NASDAQ was hit hardest of all, dropping more than 4%.1 Both the Dow and the S&P continued sliding on Thursday, too.2

It sounds dramatic, but it’s not necessarily cause for alarm. Still, whenever market volatility rears its head, it’s useful to understand why. That’s because the more we understand the why, the less cause we have to fear it.

Before I delve into why, however, let me ask you a question. Do you remember the Greek myth of Theseus and the Minotaur? In the story, Theseus descends into a bewildering labyrinth to fight the half-man, half-bull Minotaur. But to find his way back, Theseus first ties one end of a ball of string to the entrance. Then, after slaying the beast, he follows the unwound string all the way back to the surface.

The reason I mention this story is because sometimes, navigating the markets can feel like wandering through an impenetrable labyrinth. There are so many headlines and narratives, each with their own twists and turns. The good news is that it’s possible to pick up a thread and follow it all the way back to its source, just like Theseus.

A ten-year journey
In this case, follow the thread back to the end of 2008. Seems like a long time ago, doesn’t it? Barack Obama had just been elected president. The academic paper that would lead to the creation of bitcoin had just been published. And people were just beginning to realize how bad the Great Recession would become.
To combat this, the Federal Reserve lowered the federal funds rate to almost zero.3 This is the interest rate that banks pay each other for overnight loans. Their reasoning was simple. By reducing the federal funds rate, banks could afford to lower their own interest rates to customers. Lower interest rates, of course, make it cheaper for businesses and individuals to borrow money, which spurs more investing and spending. This, in turn, could help revive America’s slumping economy. And with millions of jobs lost during the Great Recession, the economy needed all the help it could get.

Rates remained in the basement for years afterwards as the economy embarked on a long, slow healing process. In fact, it wasn’t until 2015 that the Fed finally raised rates at all.4

Now follow the string forward to 2018
The Fed has started lifting interest rates at a slightly faster pace in 2018. Recently, on September 26, the central bank announced they would raise the federal funds rate to a new range of 2.0 to 2.25%.5 Officials also suggested they might boost rates once more before the end of the year. It’s the third increase in 2018, and the eighth overall since 2015.

Why are interest rates going up? Because the economy is in a much stronger place!
Unfortunately, with that strength comes the risk of inflation. Inflation is the rate at which prices rise and purchasing power falls. For example, if the rate of inflation is 3%, then a candy bar that costs a dollar one year will cost $1.03 the next. It’s essentially the measure of how valuable your money is. And if inflation goes too high, it can make even basic living costs very expensive.

Historically, inflation goes up when interest rates are low. The Federal Reserve takes the risk of inflation very seriously. In fact, stabilizing inflation is one of the reasons the Fed was created in the first place. So, to prevent the economy from “overheating”, the Fed has slowly raised interest rates. This makes borrowing costlier and reduces spending, forcing the economy – and inflation – to grow at a slower rate.

Whew! Got all that? If so, congratulations! You’ve followed the string all the way back to the surface. We’ve finally reached the present day.

How higher interest rates affects the markets
There’s really no direct link between interest rates and the markets. The effect is more of the “ripple” variety. Despite this, higher interest rates tend to spook investors.
Remember, when the federal funds rate goes up, it costs more for banks to loan each other money. In response, banks raise their own interest rates. This makes borrowing more expensive for businesses and individuals, prompting them to cut back on spending. Less spending for businesses means less investment, less expansion – and less growth. And when investors think a company isn’t growing, they tend not to invest in that company. On the individual side, higher rates can also mean less disposable income for people to spend or invest.

There are other reasons why the markets are struggling. Falling bond prices (which are directly correlated with rising interest rates). Trade tensions between the U.S. and China. Like I said, the markets can be positively labyrinthine. But interest rates are one of the main drivers behind this sudden surge in volatility.
And now you know why.

So where do we go from here?
As important as interest rates are, they’re still just one thread. There are plenty of others that could cause the markets to rise or fall. For instance, a fresh bit of good economic news could transform this week’s fears into last week’s memories. And with the economy as strong as it is, would that really be a surprise?

This is why we don’t overreact whenever the markets lurch one way or the other. You see, when it comes to working toward your goals, we do everything possible not to fall into a labyrinth of twists, turns, and changes in direction. Instead, it’s better to keep things simple. To stay above ground. To follow our own path, not headlines or individual economic indicators.

In the story of Theseus and the Minotaur, Theseus was advised to “go forwards, always down, and never left or right” to reach his goal. The road to your goals isn’t quite so cut-and-dry. But the point is, Theseus had a plan. A strategy. And with the help of ball of string, he never deviated from it.

We also have a strategy: To diversify across a range of asset classes, choose fundamentally sound investments, and invest for the long term, not the short. And while you don’t have a ball of string, you have something even better: A team of experienced professionals dedicated to holding your hand while you work toward your goals.

It’s October. It’s a time for falling leaves, trick or treating, and an endless array of pumpkin flavored beverages. It’s not a time for stressing about the markets. So enjoy the season, remembering that here at Research Financial Strategies, we’ll keep watching Washington, Wall Street, and your portfolio. Every day, every week, every month, and every year. As always, please let us know if you have any questions or concerns. We’re always happy to talk to you! In the meantime, have a great month!

P.S. If you have any friends or family who are concerned about the markets, or don’t have a financial advisor to help them, please feel free to share this letter. Thanks!

Sources:
1 “Dow falls 832 points in third-worst day by points ever,” CNN Business, October 10, 2018. https://www.cnn.com/2018/10/10/investing/stock-market-today-techs-falling/index.html
2 “U.S. Stocks Seek Stability on Heels of Wednesday Rout,” The Wall Street Journal, October 11, 2018. https://www.wsj.com/articles/markets-tumble-across-asia-led-by-tech-as-growth-worries-dominate1539225820?mod=article_inline?mod=hp_lead_pos1
3 “Fed Cuts Key Rate to a Record Low,” The New York Times, December 16, 2008. https://www.nytimes.com/2008/12/17/business/economy/17fed.html
4 “Federal Reserve raises interest rates for second time in a decade,” The Washington Post, December 14, 2016. https://www.washingtonpost.com/news/wonk/wp/2016/12/14/federal-reserve-expected-to-announce-higher-interest-ratestoday/?noredirect=on&utm_term=.af1a4b1da520
5 “Fed Raises Interest Rates, Signals One More Increase This Year,” The Wall Street Journal, September 26, 2018. https://www.wsj.com/articles/fed-raises-interest-rates-signals-one-more-increase-this-year-1537984955

Market Commentary – October 8, 2018

by | Oct 9, 2018 | Weekly Stock Market Commentary

The stock market tends to be a leading economic indicator. Last week offered some insight to economics and stock market behavior. The U.S. unemployment rate reached its lowest level since 1969 and wages moved higher, yet major U.S. stock indices lost value.

Why didn’t stock markets move higher?
The answer is stock prices tend to be leading indicators. They reflect investors’ expectations for the future. Last week, investors may have been thinking like this:
When unemployment is low, companies cannot always hire enough workers…
To hire more workers, companies raise wages…
Higher wages give workers more spendable income…
More spendable income produces higher demand for goods and services…
Higher demand for goods and services leads to higher prices…
Higher prices (inflation) cause the Federal Reserve to increase the Fed funds rate…
An increase in the Fed funds rate pushes interest rates higher…
Higher interest rates make borrowing more expensive…
Higher borrowing costs may slow business spending…
Slower business spending may cause profits to fall…
Falling profits may cause investors to sell shares…
When investors sell shares, stock prices may drop.

In general, “…while it usually takes at least 12 months for any increase or decrease in interest rates to be felt in a widespread economic way, the market’s response to a change (or news of a potential change) is often more immediate,” explained Mary Hall on Investopedia.com.

At the end of last week, 10-year Treasuries yielded 3.2 percent. Daniel Kruger of The Wall Street Journal reported, “U.S. government bond yields rose to their highest level in years Friday as investors reconsidered the strength of the U.S. economy while selling off stocks that could be hurt by higher borrowing costs.”

One way to manage stock market volatility is to have a well-allocated and diversified portfolio.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

What do you think? Athletes who grew up playing pick-up games of baseball, kickball, basketball, street hockey, and other sports with neighborhood kids may have had some advantages they didn’t recognize. A Brazilian research study, cited by Freakonomics Radio’s show Here’s Why You’re Not An Elite Athlete (Ep. 351), found children who played sports in unstructured environments showed more tactical creativity and tactical intelligence than children who played in structured environments.  In addition, playing multiple sports may be more beneficial than specializing in a single sport, at least when it comes to soccer.

A study by Manuel Hornig, Friedhelm Aust, and Arne Güllich reviewed the training of soccer players in Germany. Practice and play in the development of German top-level professional football players, which was published in the European Journal Of Sports Science, reported athletes who went on to play for the German national team played more pick-up sports as children, and played more types of sports in adolescence, than players who did not make the German team.

“The trick is not just to get lots of children playing, but also to let them develop creatively. In many countries they do so by teaching themselves…Such opportunities are disappearing in rich countries,” reported The Economist.
Maybe we should rethink our tactics.

Weekly Focus – Think About It

“One man practicing sportsmanship is far better than 50 preaching it.”
–Knute Rockne, University of Notre Dame football coach

Best regards,
John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.
Investment advice offered through Research Financial Strategies, a registered investment advisor.

 

* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

 

Sources:
https://www.conference-board.org/data/bcicountry.cfm?cid=1
https://www.barrons.com/articles/dow-tumbles-180-points-jobs-report-inflation-gauge-1538774927?mod=hp_DAY_3
https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/
https://finance.yahoo.com/quote/^TNX?p=^TNX
https://www.wsj.com/articles/bond-yields-reach-new-highs-on-growth-outlook-1538774696
https://www.researchgate.net/publication/45492811_The_effect_of_deliberate_play_on_tactical_performance_in_basketball
http://freakonomics.com/podcast/sports-ep-3/
https://www.tandfonline.com/doi/abs/10.1080/17461391.2014.982204
https://www.economist.com/international/2018/06/09/what-makes-a-country-good-at-football
http://www.keepinspiring.me/100-most-inspirational-sports-quotes-of-all-time/ (Number 89)

Words to Live By #1 – Perseverance

by | Oct 8, 2018 | Learning

A major part of my job – perhaps the most important part – is helping people reach their financial goals in life. Over the course of my career, I’ve discovered that while things like planning, saving, and investing are crucial, it’s equally important to look beyond the numbers. Achievement is about more than just spreadsheets or quarterly statements. It’s about perseverance. Hard work. Willingness to change. Gratitude. Teamwork.
Sometimes, whenever the road to our goals seems long or daunting, it’s good to follow the example of those who came before. So, over the next few months, I would like to share a few quotes that have inspired me in my own personal journey. I call it Words to Live By, and I hope they’ll move you as much as they’ve moved me.

Let’s start with:

Perseverance

What is perseverance?
“Perseverance is failing nineteen times and succeeding the twentieth.” – Julie Andrews “Perseverance is the secret of all triumphs.” – Victor Hugo

I can’t tell you how many times I’ve seen a client work so hard at something, only to come up short. A degree. A promotion. A new job. An award. Retirement. You name it, I’ve seen it. What I can tell you is that the clients who then pick themselves up, dust themselves off, and try again – and who do it every time – are the same ones enjoying their achievements right now. What good does perseverance do?

“Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” – John Quincy Adams

In our lives, we will face almost constant obstacles. Financial hardship, poor health, unfortunate circumstances, even other people will stand in the way of who we want to be, where we want to go, and what we want to do.

“A lot of people are going to try to do the same thing you want to do. You just have to decide if you’re one of the people who quits.” – Shea Serrano

The road to our goals will often seem treacherous. The obstacles will seem insurmountable, and the going unbearably slow. But if the destination is what we truly want, it will be worth the mileage. That’s why my favorite quite about perseverance comes from none other than Abraham Lincoln, who said:  “I may walk slowly, but I never walk backward.”

As you progress towards your goals in life, always remember that the ability to keep walking, no matter how slowly, is what will get you there. It matters more than talent. It matters more than wealth. Those things can certainly make the road easier. But perseverance is what makes the distance shorter.

Market Commentary – October 1, 2018

by | Oct 1, 2018 | Weekly Stock Market Commentary

It wasn’t headline news…
But, if newsprint was still popular, last week’s key economic news would have appeared below the fold.  The Federal Reserve raised rates for the third time in 2018, as expected. In addition, the Federal Open Market Committee projects economic growth will continue for three more years, although its median numbers show growth slowing from 3.1 percent in 2018 to 1.8 percent in 2021. (Remember, forecasts, no matter how venerable the source, are best guesses and not bedrock.)

Investors weren’t enthusiastic about the Fed’s actions or its expectations, and the onset of United States-China tariffs didn’t lift their spirits. Ben Levisohn of Barron’s explained:  “The Dow Jones Industrial Average dropped 285.19 points, or 1.1 percent, to 26,458.31 on the week, while the S&P 500 fell 0.5 percent to 2913.98. Neither could be considered life threatening, and the S&P 500 still rose for a sixth consecutive month. So, while we need something to blame, we needn’t get too worried. Last Monday kicked off with the implementation of tariffs by the United States and China and continued with a Federal Reserve rate hike. Neither was a surprise, though the Fed might have caught a few napping when it removed the word ‘accommodative’ from its statement.”

What does it mean when the Federal Reserve removes the word ‘accommodative?’  The Fed pursues ‘accommodative’ or ‘easy’ monetary policy when it is encouraging economic growth. Accommodative policy may include lowering interest rates or, in unusual circumstances, quantitative easing.

By removing the word, the Fed may be signaling that policy will be ‘tightening’ in an effort to prevent the economy from overheating, reported Sam Fleming of Financial Times. There is debate about whether rates are at a neutral level; one that won’t cause the economy to run too hot or too cold.

Let’s hope for a Goldilocks economy.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

When do you behave the most like yourself? Don’t worry. This isn’t about soul-searching and trying to find answers to existential questions like, ‘Who am I?’ or ‘What is my purpose?’ or ‘How should I live my life?’
Nope. This is about a science experiment!  Ian Krajbich of Ohio State University and Fadong Chen of Zhejiang University in China wanted to better understand how people made social decisions, according to a paper they published in Nature Communications. They began with the premise that “Social decisions typically involve conflicts between selfishness and pro-sociality.”

Then, they asked 200 students in the United States and Germany to play “mini-dictator games in which subjects make binary decisions about how to allocate money between themselves and another participant.”  Science Daily explained, “In some cases, participants had to decide within two seconds how they would share their money as opposed to other cases, when they were forced to wait at least 10 seconds before deciding. And, in additional scenarios, they were free to choose at their own pace, which was usually more than two seconds but less than 10.”
The upshot was people who were pro-social became more pro-social, and people with more selfish instincts became more selfish, under severe time constraints. Given more time, “pro-social subjects became marginally less pro-social under time delay…while selfish subjects became less selfish under time delay…though these effects are less pronounced.”
Maybe you behave most like you when you’re pressed for time.

Weekly Focus – Think About It
“Selfishness is not living as one wishes to live, it is asking others to live as one wishes to live.”
–Oscar Wilde, Irish poet and playwright

Best regards,
John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

 

* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

Sources:
https://www.ft.com/content/635daa64-c1ac-11e8-95b1-d36dfef1b89a
https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20180926.htm (Table: Change in real GDP)
https://www.barrons.com/articles/dow-drops-1-1-on-week-as-tariffs-fed-take-their-toll-1538182108
https://www.investopedia.com/terms/a/accomodativemonetarypolicy.asp
https://www.nature.com/articles/s41467-018-05994-9
https://www.sciencedaily.com/releases/2018/09/180904140530.htm
https://www.brainyquote.com/quotes/oscar_wilde_106085?src=t_selfishness

The Longest Bull Market In History

by | Sep 18, 2018 | Stock Market News

Human beings are obsessed with setting records.
The fastest. The strongest. The first. The longest. It’s exciting whenever a new record gets set. It makes us feel like we’re witnesses to something important, something historic. Something we can tell our grandchildren about. And now, we can add a new record to the list:

The Longest Bull Market in History

You’ve probably have recently seen the news. On Wednesday, August 22, many media outlets reported the U.S. stock market had set a new bull market record of 3,453 days.1 This incredible stretch, which by most estimates began on March 9, 2009, surpassed the previous record set in the 1990s. But here’s the thing about records. Sometimes they matter. Sometimes they don’t. And the stories they tell can be very subjective. So, in this letter, let’s break down what this bull market really means – and what it doesn’t.

Is it really the longest bull market ever?

It depends on who you ask. For every article sounding the trumpets, you can find another pumping the brakes. Fact is, the definition of a “bull market” is rather nebulous – and whether or not this one is truly a record depends on which data you’re using. The Wall Street Journal provided a good example in a recent article. “The widely accepted definition of a bear market is a drop of 20% from the last peak in this cycle, while bull markets are usually measured from the lowest point reached until the peak before the next bear market.”2
But if this is the definition you’re using, our current bull market may only have started in October of 2011. That was the month the S&P 500 fell 21.6% from its previous high. Any growth from that point would be part of a new bull market, not the old one. To which other pundits might respond, “Not so fast! That number is only accurate if you’re using intraday prices instead of closing prices. If you use closing prices, the S&P 500 only fell 19.4%2 , which is less than the 20% needed for it to be a true bear market.”
Confused yet? Don’t worry – most people would be. And anyway, if you really wanted to get technical about the definition of a bull market, you’d have to debate about whether to only use price returns (the price of a stock) or total returns (to which dividends are added). And then there’s the question of which market indices to use. The S&P 500? The Wilshire 500? The Dow? Do we use intraday prices or closing prices?
I could go on, but I won’t – I don’t want this letter to give you a headache. The point is, the deeper you dig into the numbers, the less certain a record like this becomes. Which means the real question we should ask ourselves isn’t, “Is this the longest bull market ever?”

The real question is whether it even matters in the first place

To which the answer is, “No!”
Here’s what we know: The stock market has been going up for a long time now. Sometimes slightly, sometimes sharply, but always up. Let’s say all the experts got together and decided we aren’t in the longest bull market in history. Would that change the fact that stocks have been going up for years? Would it change the performance of your own portfolio?
No, it wouldn’t.
So what matters is not whether this is the longest bull market ever. What matters is how we react to a long bull market like this one.

What goes up must come down

On March 9, 2009, the S&P 500 hit a low of 666.1 (Yes, 666.) Since then, the S&P has soared. That’s over nine years of growth. Nine years of an improving economy. Nine years of soaring corporate profits. Nine years of mostly happy times for investors.
It will end eventually.
Read that last line aloud: IT WILL END EVENTUALLY.
When that will happen, I can’t say. Indeed, many economists foresee the current bull market continuing for some time, albeit at a slower rate. Taxes are low, unemployment is low, and the economy is humming along nicely.
I can’t tell you this bull market will end next month or next year. All I can tell you is that it will end. The reason I emphasize this so much is because now is the time to prepare for that inevitable day. Now is the time to accept that however well your portfolio has done, nothing can escape gravity’s pull. At some point, you will see stock tickers showing a big, fat minus sign next to each of the major indices.
When a bull makes way for a bear, it’s not uncommon for investors to be taken by surprise. Suddenly, it’s raining – and they’ve been caught outside without an umbrella. When that happens, it’s easy to panic. To think the sky is falling. Too many investors did that when the dot com bubble popped in the early 2000s. Too many investors did that during the worst of the Great Recession. And the reason they did is because they hadn’t prepared themselves when times were good. Maybe they thought the good times would last forever.

On the other hand…

Just as it’s easy for investors to get complacent, it’s also easy for investors to get skittish. That’s why an equally bad mistake would be to think, “Oh, this bull market has gone on for too long. It’s probably going to crash any week now – time to get out!”
Nope. The markets don’t work that way. Here’s what will happen. The longer the bull lives, the more you’ll see the media speculate about what will kill it. One week it might be the threat of rising interest rates. The next, it might be corporate profits, or whatever’s happening in far-off lands across the sea. And sure, any of those things could well impact the markets. But even if the markets were to drop, that doesn’t mean a crash is imminent.
No one should abandon ship the moment they get a little wet.

The point is to not overreact

Some records matter. Some don’t. And the stories they tell can be very subjective. That’s why we don’t overreact to them. Here’s what we do instead:
1. We prepare ourselves, mentally and emotionally, for when the other shoe drops. That way, when it does drop, it will be much easier to handle.
2. We don’t allow ourselves to flinch at every market wobble.
3. We remember that we have an investment strategy, and it’s not based off headlines, storylines, records, or milestones. In the meantime, if you’re worried about what will happen when this bull market ends, that’s okay. Just focus on what you can control. Focus on paying off your house, setting up an emergency fund, or helping your children or grandchildren pay for college. Take care of the things that matter now.
Or maybe your goals have changed, and you want to take advantage of this bull market while it lasts. That’s a discussion we can have, too. Just remember that our first responsibility should always be to prioritize the long term over the short.

Human beings tend to be obsessed with setting records. But here at Research Financial Strategies, our job is to help you set goals – and then work toward achieving them. Whether we’re in the longest bull market or not, that’s what we intend to do. As always, if you have any questions about the markets, or about your portfolio, please let us know! We love to hear from you. Have a wonderful rest of the summer!

1 Michael Wursthorn & Akane Otani, “U.S. Stocks Poised to Enter Longest-Ever Bull Market,” Wall Street Journal, August 21, 2018. https://www.wsj.com/articles/u-s-stocks-poised-to-enter-longest-ever-bull-market-1534843800?mod=article_inline
2 James Mackintosh, “Calling Bull on the Longest Bull Market,” Wall Street Journal, August 22, 2018. https://www.wsj.com/articles/calling-bull-on-the-longest-bull-market-1534940689

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