The Dow Jones Industrial Average closed above 17,000 for the first time on July 3rd after a report that US employers added 288,000 jobs in June, a strong figure and sign of improving labor market strength. Corporate earnings are strong, and companies are sitting on more than $2 trillion in cash. It’s hard to believe that just over five years ago, the Dow was down around 6,600, having fallen from over 14,000, with many believing we may never return to previous high water marks.
Does this mean the economy is accelerating? Should we jump into the market in order to capture this momentum? Conversely, with over 1,000 days since the last market correction, aren’t we due for a downturn? With the stock indices at all time highs, it’s time to sell, right?
The law of averages does tell us the longer the market goes up, the closer we come to a correction in the stock market. However, regardless of the time, analysis, and money invested in trying to determine when a correction will come, the simple fact is nobody knows if the market will be higher or lower in the coming days, weeks, or months. After the phenomenal year for stocks in 2013, many believed we were sure to see a correction early this year, and some saw the month of January’s drop of over 5% in the markets as a harbinger of things to come.
We’re certainly well aware that the market will experience a downturn at some point. The question nobody can accurately answer is when that downturn will come, and how far the market might fall before again turning around and heading upward. There are many financial commentators who like to think they can predict these changes, and when they’re right, they certainly let the world know about it. However, for every prognosticator predicting doom and gloom, there is another predicting smooth sailing.
We recognize that we’re not going to be able to predict the direction of the market and whether it will be higher or lower a week, a month, or a year from now. Recognizing this, we intentionally design diversified portfolios with assets designed to participate in up markets, but provide some downside protection in down markets. When the correction comes along, and it will come, this approach generally eases the slide in client accounts.
For now, we celebrate the most recent round number for the Dow to have crossed, and the positive aspects of this now 238 year old economy of ours that, while rough, continues to improve.
– Barry Nelson