A Stock Market Top?

Happy eighth birthday of the bull market!

By Rick Kahler CFP®

March 9, 2017, was the eighth birthday of the bull market in the US S&P 500. In its lifetime it gained 314.4%, an average annual return of 19.4%. This raises a question as to how much longer it will last.

An article posted on MarketWatch.com, “Seven Signs We’re Near a Market Top and What to Do Now” gives some interesting perspective on what to look for to answer that question.

  1. Small investors begin pouring money into stock mutual funds out of fear they might miss out on another year of growth.
  2. Surveys of professional money managers show a declining number who are anticipating an imminent bear market, while more of them think the bull market will continue for a little longer.
  3. The VIX market index, which is a barometer of traders’ expectation of near term volatility (always present with a bear market), signals calm ahead.
  4. There are record price/earnings ratios, which means buyers are bidding up the price of stocks faster than earnings are rising.
  5. Investors have started to forget the pain of the last bear market and are becoming more complacent and optimistic.
  6. The Nasdaq index begins a bull run.
  7. Greed begins to outweigh fear, as investors start fearing missing out on further market gains instead of fearing future market losses.

Even to a casual observer, many of these signs look evident in the equity markets.

I’ve spoken with investors who have been on the sidelines but are thinking it’s time to get into the stock market, given its double-digit returns over the past 12 months along with the Trump rally. This is usually a reliable sign that markets are nearing a top as this new money drives the market to dizzying new highs.

When a market top looks inevitable—and we know the market will fall—what should investors do to protect their capital from being eroded away by a bear market? Selling out your stocks and moving the money to cash is always an option, but not a very good one. How do we really know this is the top and that the market won’t continue to go higher? Often the most profitable and exciting part of a bull market is the frothy run-up just before the fall.

Even more problematic, if you do get out in time to miss the crash, how will you know when it’s time to get back in? The most common answer I am given by investors to that question is, “When the economy looks good again.” That’s similar to a deer hunter saying he will load his gun when he sees a deer. By the time the economy looks good, the run up in stocks is usually nearing its end.

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Act?

The best course of action is to fasten your seat belt and get ready for some terrifying turbulence. Most bear markets drop quickly and recover quickly. Investors who get out usually do so near the bottom and completely miss the inevitable recovery. All bear markets have ended with a new bull market, although the bottom is not identified as such, but rather seen as a pause before another certain downturn.

One more thing!

Don’t feel that missing when to get out and when to get back in would make you inadequate. The majority of those who attempt to time the market for a living will miss it, too. That MarketWatch.com article that listed the seven signs of a market top? It advised investors to start edging out of the markets as soon as possible because red flags were everywhere. And it was published in March 2014—three years ago.

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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3 Responses

  1. Last Week’s Headlines

    • Inflation, which had been trending upward, took a somewhat unexpected reversal of course in March as the Consumer Price Index fell 0.3% from the prior month. Over the last 12 months, the CPI rose 2.4% compared to a 2.7% gain for the 12 months ended in February. The March decline was the first monthly decrease since February 2016. A decline in gasoline prices was the largest factor contributing to the drop in prices. But even excluding food and energy (core prices), the CPI fell 0.1% for the month and is up 2.0% over last 12 months compared to a gain of 2.2% for the 12 months ended in February. Core prices haven’t fallen since January 2010.

    • The Producer Price Index fell 0.1% in March following increases of 0.3% in February and 0.6% in January. The index rose 2.3% for the 12 months ended March 2017, the largest increase since moving up 2.4% for the 12 months ended March 2012. For the 10th straight month, prices less foods, energy, and trade services edged up 0.1%, and have climbed 1.7% for the 12 months ended in March 2017.

    • Retail sales decreased 0.2% in March, falling for the second straight month. February’s sales were revised to a 0.3% decrease, which represents the largest two-month fall in retail sales since January and February of 2015.

    • Job openings increased in February while the number of new hires dropped — an indication that employers may be having a hard time filling positions. According to the latest Job Openings and Labor Turnover Summary, there were 5.743 million job openings in February compared to 5.625 million job openings in January. The number of hires fell, moving from 5.424 million hires in January to 5.341 million hires in February. Total separations (quits, layoffs, and discharges) also dropped in February, which saw 5.071 million separations compared to 5.247 million the prior month. Job openings increased in health care and social assistance, accommodation and food services, and finance and insurance. Hires increased in retail trade and mining and logging, but decreased in federal government. Over the 12 months ended in February, hires totaled 63.0 million and separations totaled 60.6 million, yielding a net employment gain of 2.4 million.

    • Driven by lower fuel prices, U.S. import prices declined 0.2% in March, according to the Bureau of Labor Statistics. Over the past 12 months ended in March, import prices have advanced 4.2%. The price index for import fuel declined 3.8% in March, the largest one-month drop since the index fell 6.8% in February 2016. In contrast to fuel prices, nonfuel import prices increased in March, rising 0.2% following a 0.4% increase in February. The price index for nonfuel imports advanced 1.0% over the past 12 months, the largest 12-month advance since the index increased 1.3% in April 2012. Export prices increased 0.2% for the month, after advancing 0.3% in February. U.S. export prices also increased over the past year, rising 3.6% for the year ended in March. That matched the 12-month advance recorded in December 2011 and was the largest 12-month increase since the index rose 4.8% in November 2011.

    • The government deficit fell in March to $176.2 billion, down from February’s $192.0 billion. Year-to-date, the deficit sits at $526.9 billion, which is $67.5 billion more than the deficit over the same period last year.

    • In the week ended April 8, the advance figure for seasonally adjusted initial claims for unemployment was 234,000, a decrease of 1,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 to 235,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended April 1 was 2,028,000, a decrease of 7,000 from the previous week’s revised level.

    Michael Green
    [RIA]

    Like

  2. The top?

    Another worthless prognostication broken today.

    Sylvester

    Like

  3. The top?

    YET – Another worthless prognostication broken today; again.

    DJIA: 20,995.80 +231.91 (+1.12%)
    NASDAQ: 6,025.49 +41.67 (+0.70%)

    Sylvester

    Like

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