On March 9, 2009, famed investor Warren Buffett told CNBC that although the economy had fallen off a cliff, “Things will get better, eventually … just a question of how long it takes. But America has always pulled together in the past and will do it again.”
Boy, was he on the mark.
Coincidentally, March 9 just happened to be the end of what we now call the Great Recession. Despite some momentary ups and downs, the stock market, as measured by the S&P 500, has been climbing ever since. This week, it marked 3,453 days and counting, breaking the record for the longest upward trend in modern history.
But just like a rollercoaster, the climb to the top is both thrilling and increasingly nerve-wracking. At such lofty heights, everyone with a stake in the game is asking one question: When does the ride go back down? Scrolling through your news feed, you’re likely to find mixed messages.
The good news? Second-quarter annualized GDP growth, the measure of the country’s economic output, hit 4.1 percent, a bigger leap than we’ve seen in years. Corporate earnings are soaring. Consumers and manufacturers are brimming with confidence. There are more jobs available than workers to fill them. The not-so-good news? At the same time, trade disputes, rate hikes from the Federal Reserve, the specter of inflation and trouble in emerging markets all threaten to push this train over the precipice. So, what’s the average investor to do?
One adage rings true right now, says Ron Joelson, Northwestern Mutual chief investment officer: Hope for the best but prepare for the worst. “Our view is that the country’s economy remains strong,” says Joelson. “However, we don’t believe future U.S. equity returns will match the double-digit returns achieved over the last five years. The bottom line: We are not expecting a recession in the next one to two years, but the probability of a downturn has increased and the compensation for taking risk has decreased. Put simply, investors are taking more risk for less reward.”
Some investors are also worried that a flattening yield curve and Fed tightening could be a signal that the end of this unprecedented run is near. Joelson doesn’t share that concern. “I don’t see the Fed getting too aggressive,” he says. “They are acknowledging real U.S. economic strength and acting accordingly. But they certainly don’t want to be the cause of a major market dislocation, and I believe Fed moves will be more measured if the yield curve continues to flatten.”
Tariffs and trade wars are a bigger uncertainty. “Markets can move on perceptions and beliefs, even if the impact of contemplated tariffs is relatively small. Investors may still worry about escalation and indirect tariff effects that are difficult to quantify,” Joelson says.
WHAT SHOULD YOU DO?
If retirement is still decades away, it’s probably a good idea to ignore much of the chatter and stay focused on the long view. In other words, keep doing what you’re doing. You’re likely going to experience several bear and bull markets along the way. The S&P 500, an index designed to measure performance of the U.S. economy through changes in the total market value of 500 stocks, over the last thirty years has produced more positive returns then negative ones.
If you are closer to retirement or in retirement, it may be a good time to rebalance your investment portfolio — particularly if it’s been a few years since you checked your allocation mix.
Of course, every single investor is different. If this aging bull market is on your mind, reach out to your financial planner or professional, who knows your investment goals and timeline. He or she will help you make sure you’re in a strong position to take advantage of the growth that may still come in the months ahead, while also safeguarding yourself for the growing possibility of a downturn.