February was another strong month for investors, as the bull market continued. The S&P 500 finished up nearly 4%, while the Barclays Aggregate Bond was up 0.69%.1 Even better news, some of the stocks that were holding back performance in 2016 are leading the pack so far this year. In this sense, we are seeing many of our mutual fund and individual stock holdings participating in the 2017 leg of this rally.
This is the fourth consecutive month of positive gains for the S&P 500 with 11 of the last 12 months being winners. This eventually leads to the question of whether we are due for a “reversion to the mean” with a period of losses for stocks. For long term investors, I would argue: does it matter? As long as we don’t see evidence that the market is overheating, then we would not typically encourage younger investors to sell stocks just because they’ve done well. With our retired client base, we still don’t currently see a reason to scale back target stock exposure. It isn’t just because of the market fundamentals either.
The chart below shows how frequent new highs have been for the S&P 500. Bearing in mind, there are around 250 trading days in any given year, you can see that hitting new highs can be a pretty common phenomenon. Of course, the 2000 to 2012 leg of the Mega Bear that included the Dot-com bust as well as the Financial Crisis allowed only a paltry number of all-time S&P 500 highs. We have seen these ice age stock markets happen once every 40 years or so. If you look beyond that era, we shouldn’t be too concerned with hitting new highs time and time again.
There are always countless numbers of things that can steer the markets off its present course. Our main concern in the immediate future continues to be monetary policy. The Fed is giving hints that they might be raising rates a little faster than they originally expected. Although this would only happen if our economy has shown signs of strength, investors might see rising rates as a headwind toward future growth. Stocks could suffer as a result.
Just about every time President Trump tweets or gives a speech, his naturally controversial tone strikes a nerve. So far, his remarks haven’t had any negative impact on stock movements and his rhetoric has been pro-business. If we don’t eventually see results from promises made, there could be backlash, especially if recessionary fears aren’t squashed.
We don’t expect stocks to continue having such a direct route upward with month after month of positive returns. However, we could take on more traditional market movements and still see many more all-time highs in our future. Patience will be rewarded!
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