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Hard to Tell Boom from Doom

December 31, 2018

|Daniel A. White

Last October we saw serious stock market volatility. And for better or worse, the trend has continued through the end of the year.

In fact, more than half of the world’s major stock markets are down (or were down and are now barely up) in 2018.

In the U.S., the story is similar. While we’re in the second longest bull run in history, the latter part of 2018 has been mostly a “buy the dips” market.

The most cited reasons for the slide include:

  • The Federal Reserve raising short-term interest rates based on growth, jobs, and inflation,
  • President Trump’s trade war threats, and
  • Global growth forecast cuts from The International Monetary Fund and others, sparking fears of worldwide financial calamity.

Still, we’ve seen numerous new highs during this run, which meant many investors simply bought equities and rode out the dips – a “buy and hold” strategy that has proven lucrative.

Consider that the Dow Jones Industrial Average was around 7,000 in 2009. Earlier this year, it was up to almost 27,000, for a whopping gain of about 385 percent. But the market has actually performed better than that, returning an enormous 582 percent from 1987-2000.

That fact is interesting because it’s driving analysts to say there is more growth potential in the current market. But it could also mean the market is under-performing relative to 1987-2000, and perhaps is on a decline.

As I mentioned, many of the world’s markets are already in decline, which would indicate the correction has already begun. Whether that’s true or not, it seems certain things will get worse before they get better over the long term.

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