As I wrote in my post 12 months ago, I am waiting for the end of the rising stock market.
It is true that the American stock markets recovered meanwhile and even made a new Alltime high, but time is running out.
As you can see in the Fibonacci chart below, the US market (here SPX500) has recovered from its 2018 end-year losses by 61.8 percent:
Things seem to be quite comparable with January, 2018 when the Dow Jones Industrial index rose for several days without any correction. These days, the stock index rose 1000 points within seven working days (28.1.2019 until 5.2.2019):
This is why I think that it is a good idea to sell stocks now and better buy a short instrument on the Dow Jones Industrial or the S&P500 index.
With the US opening today, the index continued moving southwards:
Here are two more articles with some background information:
Preparing for the end of the bull market
By some measures – and there is controversy about it – we are now in the longest bull market in the history of the S&P 500. For many people, that raises alarms. We all remember the devastating impact of the crash of 2008 – it’s been imprinted on our psyches. Brent Joyce doesn’t share those views. He is the chief investment strategist at GLC Asset Management Group, which oversees over $50 billion on behalf of its clients. He believes that while the S&P bull is getting long in the tooth, it has another year to 18 months to run. And when it ends, it will be with a “garden variety recession,” not the cataclysmic economic seizure we experience in 2008, which almost let to the collapse of the world financial system.
“Some people think a bear market automatically results in a loss of 40% or 50% of their money,” he says. “It’s not that high.” By his calculations, the average bear market loss for the S&P 500 is 33%. The average bull gain is 172%.
The current S&P bull started on March 10, 2009, when the index, which had been in decline for months, rallied by 6%, en route to a 10.7% weekly gain. It has not dropped by 20% in closing trading since then. (A 20% decline from the high is the number economists generally regard as signalling a bear market.)
There were a few close calls, notably in 2011 and again in 2015-16. But both times the S&P decline stopped just short of the 20% figure. You can find a descriptive time line of the bull at: https://www.glc-amgroup.com/news-insights/market-reviews/s-p-500-makes-history-recording-longest-bull-market-run-ever.html
Although this is arguably the longest bull in the history of the S&P 500, it is not the most profitable one. That honour goes to the 1990s tech boom, which saw the index soar by 417% before the bust hit. This time around, the gain to date is only 323%.
In terms of compound annual growth, the current bull only ranks eighth out of twelve since 1942. The number-one spot is held by the bull market of 1982-87, which saw the S&P 500 rise by an average of 26.6% per year.
It’s worth noting that the Toronto Stock Exchange does not share in this record run. It has twice dropped more than 20% over the same period.
There are signs of some erosion around the edges of the S&P bull, Mr. Joyce says. Share prices are high (although not as high as during the tech boom of the 1990s), and rising interest rates, increasing wage demands, and higher input costs from tariffs and commodity prices will eventually eat into corporate profits. Uncertainty over trade policies may also have a negative effect on investment decisions, which would hamper growth.
However, none of this will happen overnight. “Net earnings drive markets higher, and we believe we have several strong quarters still to come,” he says.
That said, Mr. Joyce cautions it is unrealistic to believe that there won’t be another bear market. “It could come along any time,” he says. While he doesn’t think it is imminent, any number of unforeseen factors could trigger it.
For that reason, his company’s investment strategy is shifting towards neutral in its balance between equities and fixed income. He urges investors to re-evaluate their own portfolios in this context and decide whether they are in a comfortable position to deal with a bear market when it returns.
Where to invest
Where should you invest? On the fixed-income side, he recommends high-quality bonds over high-yield bonds for safety reasons. High-yield bonds (often called junk bonds) will be vulnerable in a recession. Bonds with a high credit rating will provide portfolio stability in a stock market downturn.
On the equities side, he advises overweighting Canadian stocks, based on reasonable valuations and good earnings. He is also still positive on U.S. stocks, despite high prices, due to the continued strong earnings outlook. But underweight emerging markets, he suggests. They are too volatile in the current context.
“Don’t get hung up on this longest bull market milestone. It’s history,” he concludes. “But if it prompts people to reassess their portfolios and their objectives, that’s good.”
Courtesy Fundata Canada Inc. © 2018.Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder andThe Income Investor newsletters, available through his BuildingWealth.ca website. This article is not intended as personalized advice.
Source: https://www.newsoptimist.ca/opinion/columnists/preparing-for-the-end-of-the-bull-market-1.23469729 loaded 7.2.2019
We’re in the Longest Bull Market in History — What Should You Do Now?
While no one can predict when the bull market will end, there are some protective steps you can take.
Image Source: Getty Images.
Is this really the longest bull market in history?
By most experts’ definitions, the current bull market is indeed the longest in U.S. history. However, there are two big caveats to that statement. First, as you can see in this chart of the five longest bull markets ever, while this one is the longest, it isn’t the one with the largest upside move. Not yet, anyway.
| All-Time Rank | Bull Market Start | Bull Market End | Total S&P 500 Gain |
|---|---|---|---|
| 5 | August 1982 | August 1987 | 229% |
| 4 | October 1974 | November 1980 | 126% |
| 3 | June 1949 | August 1956 | 267% |
| 2 | October 1990 | March 2000 | 418% |
| 1 | March 2009 | Present | 324% (so far) |
Data Source: www.visualcapitalist.com. Current bull market gain updated as of 8/28/2018.
Additionally, some reputable sources consider the bull market that began in the 1990s to be just one part of the longest bull market in history. For example, according to FINRA’s list of the five top bull markets, the longest bull market spanned more than 12 years, from October 1987 through March 2000. Though that period included the savings and loan crisis in the late 1980s, there’s a solid case to be made that that was a correction in a longer-term bull market.
Technical definitions aside, there’s no denying that the current bull market has been an impressive run for stocks, with the S&P 500 more than quadrupling since the financial crisis lows.
Is the stock market too expensive?
Generally speaking, the answer is yes.
For starters, the average P/E multiple of the S&P 500 is more than 25. This is significantly higher than the long-term average of about 15.7. However, earnings growth has accelerated recently due to tax reform, so it’s possible that this metric is deceptively high.
In addition, the so-called Buffett indicator has never been higher. Warren Buffett has described the ratio of total stock market capitalization to GDP as the “best single metric of where valuations stand at any given moment.” Generally speaking, levels over 100% are considered to be expensive.
Well, the ratio is currently at more than 148%. Not only is this well beyond what Buffett and many other experts consider to be expensive, it’s at an all-time high. In fact, the indicator peaked at about 145% at the height of the dot-com bubble.
When will it end?
Here’s the problem. Stocks are historically expensive right now, and it’s difficult to make a solid argument to the contrary. However, timing the market is impossible to do.
In other words, just because we’re now in the longest bull market in history doesn’t mean that stocks can’t continue to go up for several more years. Under the right political and economic circumstances, it’s possible that there’s tremendous upside from here.
What should you do?
To be clear, it’s not wise to stop investing in stocks simply because the market looks expensive. However, there are a few smart moves you can make to protect yourself in the event of a correction while also setting yourself up to take advantage if prices continue to climb higher. For example, you could:
- Start buying some defensive stocks — utilities, REITs, consumer staples, and Dividend Aristocrats are some good places to look. These tend to fare better than most other stocks during tough times.
- Average into new positions. In other words, instead of investing, say, $5,000 in a stock you have your eye on, it could be smart to invest $1,000 per month. This way, if the market continues to rise, you’ll likely enjoy some upside, but if the stock falls, you’ll be able to buy some of your shares cheaper.
- Accumulate some cash to take advantage of opportunities that arise if the market corrects. To be clear, it’s still a smart idea to leave most of your money invested. As a personal example, I have roughly 10% of my portfolio in cash right now, ready to pounce if stocks drop — but 90% of my money is still invested and ready to capture any further upside. As Buffett says, “When it rains gold, put out the bucket, not the thimble.” Having a modest amount of cash gives you a bucket to put out.
The bottom line is that while stocks look a little expensive right now, there’s no reason to think that a downturn is imminent. The bull market won’t last forever, but it could certainly last for a while longer. Having said that, it’s not a bad idea to play a little defense with your investment strategy.
Source: https://www.fool.com/investing/2018/08/29/were-in-the-longest-bull-market-in-history-what-sh.aspx loaded 7.2.2019
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