By Ted Schwartz, CFP® and Hillary Hienton
‘They want the ocean without the awful roar of its many waters’- Frederick Douglass
According to Ben Levisohn in the November 18th
edition of Barrons, the S&P 500 Index has now gone 62 weeks without a drop of 2% or more, the longest such streak since 1965. Think about it- The last time we had a market this calm was when there was no Medicare in the US, Joe Namath was a rookie with the New York Jets, we were embroiled in the Vietnam War, and the Dow Jones Industrial average closed the year at 969.
So, the
markets have been calm beyond any reasonable expectation for more than a year now. There are no lack of problems which could roil the markets normally- healthcare uncertainty, North Korea, the Mueller investigation, persistent income inequality with no solutions on the horizon, record numbers of refugees and displaced persons worldwide, costly and damaging storms in rapid succession this fall, and current uncertainty about tax reform.
We have no idea when the calm rising market will change. As John Maynard Keynes said, “Markets can remain irrational for longer than you can remain solvent.” We do know that a return to normalcy is inevitable. A return to volatility and more bumps in the market is not necessarily harmful to your long-term financial plan. However, it is very disquieting and unpleasant after we’ve been treated to such a rise. Yes, we
have been spoiled in the past year and appreciated the returns.
What we know is that the economy and earnings are growing, but not growing as fast as market valuations. That tends to be a cautionary tale for future returns. So, we might realistically expect somewhat lower future returns than historic averages. The problem is that the returns will likely be volatile and be made up of large drops and
gains. That is the normal way that markets function and we just need to keep that in mind.
So, as we bid adieu to 2017 we can be thankful for the handsome gains that year provided and expect a return to reality at some point. As always please feel free to reach out to us with questions or to schedule a review.
