As we approach the last trading day of the week, we can look back and reflect on what has been a wild and bi-polar episode of market movements and emotions. In the previous week market weakness was felt and the first thing Monday morning a dramatic drop was felt throughout U.S. markets. Compared to the opening minutes, a significant amount of ground was regained during the trading day on Monday.
As we stand here at the close of trading on Thursday in the U.S. and early morning in Asian markets, we see an overall resurgence of strength across the major indexes. Has the market found its feet? Possibly. If so, this correction spell would have been extremely short. With continued uncertainly as to what next steps the Chinese government will take influencing their economy and an approaching decision to be made by the U.S. Federal Reserve to keep rates constant or increase rates, it is likely that some continued volatility will exist throughout the remainder of the summer and early fall.
Below is a chart of the S&P 500 over the last five years. As you will see, since the summer of 2011, the market has not experienced a significant shock. Last fall the market experienced some turbulence, but historically speaking it was rather minor and short-lived. If our current market skid is more or less over, then it would be on par with what we experienced last fall.
The mini-bear market that gripped us in 2011 had some significant strength and traction to it. It was not until early 2012 before the market truly found its feet. Since then the bull has went on to run that has only seen minor speed bumps until present day. The need of some degree of correction is not unreasonable for this bull market.
The question to be answered is, “Where do we go from here?” My crystal ball says that we will experience continued volatility in the market until early fall, then resume the bull market run until at least the remainder of the year. I tend to think we are in the latter part of a larger bull market, but do not think we are at the conclusion, yet.
As an investor, it’s time to look for reasonably priced stocks and build your positions. At the same time it is necessary to think further out into the future. This planning needs to be oriented toward figuring out where you will move when the bull market concludes and the bear returns.
In subsequent posts we’ll consider some options for planning for the conclusion of the current bull run. As the bull market gets longer in the tooth, it is increasingly important to prepare for the birth of a bull market.