Is the Market Too High?

Is the Market Too High?

by Bo Billeaud on August 25, 2016 Uncategorized

There are a few recurring concerns that we here at BCM are hearing from prospective clients about the future outlook for the financial markets. While most who hear our approach to investment management become quite enthusiastic, these recurring concerns still cause consternation, so much so that it sometimes leads to analysis paralysis.

The first concern is the level of stock prices. “Prices seem too high” is what we hear. That’s an understandable concern at first glance. We all want to get a good deal when buying.

Here at BCM, because we are evidenced-based investors, a review of the data of the last sixty-plus years offers an alternate conclusion regarding future stock prices, today’s “high” prices notwithstanding.

We looked at daily price closes for the S&P 500 stock index from September 22nd, 1954 through today (August 24, 2016). We created the chart below with this data, and noted the progression of all-time price highs (by red line) of the last sixty-two years.

Here’s what we learned; since September of 1954 (OK, since you’ve asked, that is the year and month I was born) the S&P 500 stock index has reached a record new high 997 times. And for at least those first 996 times, each and every time a new high in prices was reached, it was subsequently followed by… yet another new high. No exceptions!

So, while the emotional response to new highs for stocks might be to avoid them, the evidence of the data suggests that the next time a new high is reached, it will probably continue to do so again (and again, and again…). I know, there are no guarantees, but it sure seems to be the way to go. Particularly if you want to get off of the sidelines and assume the potential to actually make money with your portfolio.

P.S. – Of course, we here at BCM believe that through our 1) economically-balanced portfolio structure and 2) our Market Risk Model, we are well prepared for any number of future market outcomes.