March 13, 2017
The stock market has been delivering outstanding returns for a number of years now, despite some evidence that gains aren’t rooted in solid business fundamentals. I think the writing is on the wall for a correction, but I’ve thought that for a long time and it isn’t happening!
Still, the fact remains that stocks are expensive right now. We’re seeing some of the highest valuations in history.
So it’s right to ask – should you “sell high” to lock in gains?
If you believe Barron’s, the answer is no because the Dow is headed to 30,000 in no time. Those prognosticators believe the Dow’s current run is no fluke, but supported by earnings and growth.
I think that’s fake news. Earnings have been weak for nearly two years. And 2016 Gross Domestic Product (GDP) was a paltry 1.6 percent, the lowest rate since 2011. In fact, last year was the 11th straight year that annual GDP growth has been less than 3 percent.
On top of that, comparing today’s Dow index with past iterations is essentially a fruitless exercise because the companies making up the index change over time. The “losers” are replaced with more modern “winners,” so the index always reflects the brighter market participants. Tracking the Dow is good for TV ratings, but not so much for financial analysis.
There are other worrying signs too, which I discussed in some detail on my Feb. 19, 2017, “On the Money” radio show. All in all, the decision to sell or stick it out boils down to one critical measure – your personal situation.