Well, it may not seem like it when we consider that the S&P 500 Index got off to its worst start ever in the first week of the New Year, but we are in one of the longest-running, broadest wealth-producing bull markets in our history. On March 9th of this year, the bull market in U.S. stocks, represented by the S&P 500, celebrated the seventh year of its steady recovery from the Great Recession. How dramatic has the comeback been? The Index has risen 194% since closing at 676.53 on March 9, 2009. And it’s not just the S&P 500. The Russell 2000 is up 213% over the same seven-year period. How about the Nasdaq 100? It has gained 311%. The U.S. stock market has been rising for 84 months without a 20% drop. There are only two instances of longer streaks in the post-War era.
And yet, rather than take comfort in the fact that the economic recovery is well underway, the press feeds us a routine diet of market threats to come. Why is it that, like Rodney Dangerfield, this bull market doesn’t get any respect?
- Recent volatility that began last spring is to blame. While we have stayed out of bear territory, there have been two separate drops of more than 10% between May 2015 and today. And behavioral finance teaches us not only that we feel the pain of a loss twice as much as we celebrate gains, but that we tend to believe whatever has happened in the recent past will continue to occur.
- Another significant factor in investors’ relative pessimism is that, unlike most economic rebounds, the recovery from the Great Recession has not progressed at lightning speed. It’s been a slow and steady march forward, again with a few notable setbacks. What’s more, with profit levels of American corporations down 32% from a record high set in the third quarter of 2014, wages have not increased. As noted in a Wall Street Journal blog, wage stagnation continues to be a “big reason why demand remains weak and the economy consistently fails to achieve escape velocity.” Instead, consumers remain mired in uncertainty about the market’s future path and fear another major downturn.
- Finally, many of the investors who bailed out of the market early on in the Great Recession are waiting for the “right time” to get back in. Rather than participate in the recovery, these investors continue to sit with cash on the sidelines. And, of course we know that timing the market is a fool’s errand.
I’d ague that volatility like we have seen only underscores the wisdom of a properly diversified portfolio and adhering to a carefully constructed financial plan based on your goals and risk tolerance.
Carl Richards, creator of the weekly Sketch Guy column in The New York Times, is fond of saying, “Even the ‘best portfolio ever’ is one behavioral mistake from blowing up. As an industry, we need to get a lot better about helping people to behave correctly. The best investment portfolio, the best-designed portfolio is only as good as your ability to behave with it.” As Richards commented in a recent industry interview, “Stocks are the only thing that humans rush to buy when they’re marked up and hurry to return when they’re on sale. Can you imagine behaving that way with your new car? You show up at the Audi dealership, and you walk in and you say ‘I need a new A4 Allroad.’ And they say, ‘you’re in luck! We just marked them up 30%!’ And you say ‘Awesome, I’ll take three!’ It doesn’t happen.”
Working with a trusted advisor can keep you squarely focused on yourself rather than on the market noise and guide you to make rational investment decisions that keep you well-positioned for the long-term.