How Long Will the Market Stay Strong?

As of fall 2019, the bull market was officially the longest on record, but this doesn’t stop skeptics from asking when it will end. And this leads to the question: How long will any market stay strong?

Most financial analysts use 20 percent thresholds to label bull or bear markets. A bear market begins, for example, when an index falls 20 percent from its peak.

So, as of this writing, we are in a bull market. The S&P 500 index is up more than 300 percent since its closing low on March 9, 2009.

But is it a bubble that will burst?

Market bubbles, such as the housing-market bubble that burst in 2008 and the dot-com bubble that burst in 1999, are fairly regular occurrences. They occur when an economy or market has become unbalanced due to a flawed outlook. And bursting bubbles typically hurt all investors, even those who do not own the inflating asset, because they can affect more than just the inflating asset. Recall that the housing-market bubble that burst in 2008 affected the broad stock market.

Although there are no clear asset-class bubbles today (equities are up broadly), there is concern that at some point the market will have to recalibrate and take a downturn. But we cannot know when that will happen.

How do you prepare, then? One option is de-risking with diversification. It cannot protect you from a decline in all markets, but stock and bond markets often perform differently, so diversifying into stocks, bonds, cash, and possibly even real estate and commodities may help protect you in a down market.

Remember, de-risking does not mean removing all equity risk from your portfolio, because equities play an important role in any portfolio by facilitating growth. The idea, if you are concerned, is to allocate more assets to less volatile asset classes, such as fixed income. Bonds tend to be much less risky than stocks.

For assistance with this diversification process, please contact my office. I’m here to help.