Perspective on Market Direction

From time to time we are asked about where we think the market is heading, whether or not another crash or “correction” is imminent and whether or not investing in the stock market is a wise investment.

To give a little perspective on this, I want to share a story with you.

In January of 1995 I was starting the second semester of my senior year in high school. Like many high school seniors, I was excited for graduation and ready for my learning to be over (oh, the ignorance!). In my senior social studies class we had an assignment. We were to pick a major, recurring news theme that we could track and report on for the entire semester.

Naturally, when the time came for us to initially report on the news theme we had selected, I had completely forgotten about the assignment and the due date. In a rush, I ran over to the stack of newspapers in the back of the class room and feverishly tore through the pages to find something relevant and recurring. By that time, other students had claimed most of the fun, easy topics. Taken topics included pop culture, sports, and others.. This left the business and financial section relatively untouched.

In my haste, my eyes stumbled on a headline: Dow at 3,838.48. At the time, this boring subject (and arguably still boring) was at least something I could report on throughout the semester. Quickly, I cut out the article, taped it to a piece of tag board and voila! – Mission accomplished.

The reason why I am sharing this is to offer perspective on what has happened over the last 20 years. Today (as of this writing) the Dow stands at 18,305 – almost 5 times its value in January of 1995! Why is this important? There are many reasons.

First, it gives perspective to individuals who worry about day-to-day market fluctuations. In other words, don’t watch the market daily. Second, it also gives perspective on how the market has weathered major events such as the October 1997 mini-crash, the Dotcom bubble bursting, 9/11, the Great Recession (Financial Crisis), the May 2010 Flash Crash and 2016’s Brexit. Third, it also lets individuals know that diversification is critical to any investment portfolio. That is, during these volatile times, other asset classes aside from stocks acted differently.

Does anyone know where the market is going? I would argue the answer is no; when time horizon is measured in days or months. For our clients, and personally, that’s why we look at long-term time horizons – in this case, just over 20 years.