When we think about the current stock market, here is the tale of the tape. The Dow has hit some 74 record highs since the 2016 presidential election. Its highest close to date was 23,557.23—hit just a week ago. So far this year, it has had two separate streaks that lasted more than 10 days, a feat we’ve not seen in almost 60 years. It had three runs that lasted a full nine days—something we’ve not seen since 1955. It’s enough to make you wildly optimistic or downright anxious.
Taking the temperature of Wall Street depends on who is measuring. Some financial experts are donning their tank tops, looking forward to an eternal summer. Others are pulling out the down-filled parkas for a coming winter. Unless they’re enjoying a slice of Dutch apple pie or a glass of English ale, few are embracing the lukewarm middle.
Perma Bulls believe that this is the never-ending gobstopper of market returns. They are “permanently bullish”: Whether money is loose or tight, interest rates are high or low, earnings are good or bad—for them it’s all a reason to buy. They have no doubts that the market has legs—and very long ones at that. They point to record corporate earnings, a historically low fear index, high consumer sentiment, and Trump’s pro-business, anti-regulation bent. Everything is a reason to run further and longer in the rush of a wilder and broader bull stampede.
Perma Bears, on the other hand, find no logic in any of it. They’ve seen this movie before, and it has an unhappy ending. They believe the current market is pumped up on passion and promises and is nothing more than a smoke screen for an economic Armageddon lurking deep within the data. Bears point to overvaluation, high credit levels, contra-indicators, and Washington’s inability to pass any meaningful legislation. They’ll be the ones hollering “I told you so” in post-crash interviews that lend instant fame to every doomsday guru who has ever uttered a discouraging word.
Whether you’re with the Goldilocks gang or the naysayers, it’s important to remember that markets are not always rational. Bull runs are seldom logical. Corrections are infrequently predictable. And preserving wealth for most of us is more often an exercise in timing, diversification, damage control, and a little bit of luck.
We take nothing away from those engaged in the hard work of technical analysis. We salute the forecasters who embrace the analytical evidence for why “this time will be different.” We applaud the experts who make a logical case for why “what goes up may not come down.” Except that they’re often wrong. Dead wrong. Despite the chart patterns and statistical curves, everyday people lose their hard-earned money when the market goes South. Period.
Understand that letting it ride on Wall Street is a life-changing “wager” where we’re “betting” that companies will remain efficient, governments will stay solvent, and the world will always be calm. So whether you diversify into real estate, bonds, or gold—now is the time. Failing to do so is like playing stud poker with your retirement funds. While the Perma Bull’s exuberance may occasionally seem justified and the Perma Bear’s skepticism may at times seem warranted, in actuality it sits somewhere in between. And being prepared for anything works all the time.
