Another day, another new high

Image source: Pexel

Dow up 9 straight days

The Dow Jones Industrial Average on Wednesday set a new closing high for the ninth day in a row, marking the longest record-setting run in three decades.

The blue-chip average climbed by 0.2 percent on the day, breezing past its broader counterparts, the S&P 500 and the Nasdaq Composite, which both ended slightly lower. US stocks have been on a tear since Donald Trump clinched the election in November, with the Dow having rallied by 13.3 per cent over that time period. The index, which tracks 30 of America’s most prominent companies, has not closed at record peaks for nine days in a row since January 1987, according to Bloomberg data.

90 days without a 1% decline

What’s good for the Dow is usually good for the S&P 500 as well. Today, marked the 91st consecutive day that the S&P 500 has not lost 1.0 percent or more in a day. That’s not to say that the index has increased in value every single day — some days during that time-frame it has declined in value — but it hasn’t had a single trading day where the market closes 1 percent or more lower than the prior day’s closing price over the past three months.

This is the 14th longest such streak:

Image source: Pension Partners

Such streaks are truly meaningless and are nothing but statistics and data for articles like this. The stock market’s long term performance is all that matters. Short term movements are not what you should be thinking about. The market’s 13 plus percent gain in three months shouldn’t be create a feeling of euphoria in the same way a 37 percent decline in one year — as was the case in 2008 — shouldn’t be a cause for a sense of depression.

While it’s nice to see the value of your portfolio increase, in this case quite significantly over a few months, short-term stock market moves — and one year is relatively short-term — should not be what you are looking at. You should be investing for the long haul. As a reminder, the S&P 500 has returned 9.7 percent (including dividends) on average over the past 50 years. If you invest $5,000 every year for 40 years, you will likely end up with almost $2.25 million. During that time, you might have short periods where there is a significant gain, like the 3-month period that we are in now or periods when the value of your portfolio can decline significantly.

You should try to ignore such market movements and think of your money as a very long-term investment. You are less likely to act irrationally — buying more when the market is reaching unrealistic highs or selling when the market overreacts to negative news and dramatically lowers the value of your investments. It is better for your stress level. You will sleep well.

The bear is hibernating

Again, while we shouldn’t be paying too much attention to short-term trends, there is another interest statistic to look at. Okay, we shouldn’t put much weight in these short-term indicators, but they are fun to look at…

We are about to experience a relatively rare occurrence: winning months of January and February. While January has typically been a positive month for the stock market, February hasn’t always been an up month. Since 1945, January and February have both registered monthly gained only 27 times; that’s about one-third of the time.

As we know, past performance is no assurance of future results… that said, in each of the previous 27 instances where the market showed gains in both January and February. the total for the year was positive. This looms well for 2017 overall. Given that the market is up over 13 percent thus far this year, there is a greater likelihood that the market would end the year in positive territory.

In 25 of those 27 years, the remaining 10 months in the year also showed a cumulative positive outcome.

Image source: Marketwatch

All this positive feel-good talk could about the market results and projections are not meant to make you feel better about your portfolio. Remember just one year ago when the indices declined dramatically. People were taking money out of the market. Financial advisors and personal finance and investing websites were trying to convince people not to sell and to think about their investments for the long run.

For every positive indicator, there’s a negative one…

For every positive data point or indicator, you can find negative ones as well. The New England Patriots pulled off the stunning comeback earlier this month, overcoming a 25-point deficit to win the Super Bowl. Historically, that victory was a negative indicator for the stock market. When teams from the AFC — the American Football Conference — win the Super Bowl, the market loses money that year.

Some people might view this extended positive streak as an indicator that a major correction is looming. Sam Stovall is Chief Investment Strategist of U.S. Equity Strategy at CFRA believes that a market correction is long overdue:

If you need additional encouragement that a bear market is not just around the corner, history again may offer some more virtual Valium.

– Sam Stovall is Chief Investment Strategist of U.S. Equity Strategy at CFRA

Go climb a mountain

I am not a believer in short-term trends, statistics. or indicators. It’s just fun to note such milestones, like 91 days without a sizable pull-back or positive annual returns during all 27 of the previous post-war instances when the market was positive for both January and February. Heck, we haven’t even finished February — there are still four trading days left in the month — and we are talking as though this month will end in positive territory. Okay, sure… with less than a week left in the month, the likelihood of the S&P 500 giving back its 3.68 percent gain for the month is incredibly low, but it could happen. There could be a catastrophic event which cripples the market. The week following 9/11, the S&P 500 lost over 11 percent of its value.

We should not be looking at short-term market activity. We are all in it for the long run. Stop checking your portfolio’s value every day. Go outside and exercise; climb a mountain and admire the incredible vista. Have fun. Most people should simply invest their money on a regular basis and have confidence that over the long haul, the U.S. economy and the stock market will likely continue to climb. Keep investing. Decades later you will likely be happy with your portfolio.

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