So When Is The Next Big Drop Coming?...

Wow, talk about a question beyond my pay grade! But in this charged environment we have to ask.  A lot of people are very anxious and nervous in this market.  Since March 2009 it has been nothing but up for stock prices. This is the second longest uptrend in history. Only the 1987 – 2001 run is longer. 

In addition, the market is expensive today (see chart below). We are not in Bubble territory yet but the market price-to-earnings ratio is above the long term average of 15X.  We have gotten used to expecting big crashes every six or eight years - the tech bust in 2000 and the housing bubble in 2006 - 2009 – so shouldn’t we be expecting another one soon? The Fed is starting to push up interest rates and inflation may follow soon so the economic environment may be taking a turn for the worse.

expensive pg 2.jpg

And then there are the foreign policy issues like North Korea and Brexit and, of course, the daily tweets out of Washington. These are generating increasing investor fatigue and exhaustion.

So, you get the picture, there is plenty to worry about. But stocks continue to move higher and stay stable (see chart below) and the world has rarely been more in sync. Not only is the U.S. economy growing but so is Europe (even Greece is growing!), and Emerging markets today are better able to handle global stress.  

Volatility pg 2.jpg

We will get a Bear Market (a 20%+ drop) at some point in the future, we always do, but the experience doesn’t have to be life threatening. As the chart below shows (sorry for the small print) even the big drops are followed in pretty short order by recoveries. The secret to long term investing is often neglect!  

black friday pg 2.jpg