As of yesterday, three major U.S. stock market indices (Dow Jones, S&P 500, and Nasdaq) closed at all time record highs. Much of the reaction in the financial press voiced concerns that record market levels suggest that stocks are expensive and that the market is in danger of tumbling.
Given this popular concern, one might wonder “is it time to worry?” In our opinion, the answer is “NO!” When things are going well, the stock market routinely sets new highs. The S&P 500 has reached a new record high 9 times so far this year. Since its recovery from the ’08-’09 financial crisis, the S&P 500 has recorded 117 new highs and has risen 39% above the previous high set in 2007. Over the past 20 years, the S&P 500 has set 296 all-time highs and has risen 375%!
If you pulled money out of the stock market every time the market reached new highs, you would have been very busy and would have likely missed out on very strong gains.
We believe that it is a mistake to judge whether stocks are cheap or expensive without also considering the underlying strength of the businesses they represent as well as economic conditions. Based on the measures we follow, we do not think that the market is expensive at current (record) levels. More broadly, the stock market can be viewed as a representation of the strength of the U.S. economy. If you believe that the U.S. economy will continue to grow, you can be confident that more record stock market highs will come in the future.
In a recent meeting, a client noted that over the long-term, he expects the market to “move up and to the right.” We could not agree more. The market has done this for more than a century by following “all-time record highs” with even higher “all-time record highs.”If you would like to discuss our opinions, outlook, or your portfolio in greater detail, we would be happy to schedule a meeting or a conference call at your convenience.
Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.