There has been no new market high since May 21st, 2015. That’s a reality that has some investors panicking; some are even dubbing this the “Twilight Zone” (do do do do). And yet – and yet, if we ignore the preemptive panic, we can see that for all the threat a flat market can present, there’s good news.
If we look at global stocks, we find that as of the end of May they were off by 8%. Commodities have lost 22.8%. European bank stocks are back to 2008 Lehman Brothers lows; Japanese bank stocks are down 30% and Chinese bank stocks down 40%. Oil is down 60% and gold is down 35%. Hedge and mutual funds have lost and are continuing to lose money, as are junk bonds and emerging markets. Are you pushing the panic button yet?
But the overall market is only down 2% overall. For all that we could interpret the state of the commodities and the banks as negative, the market itself is, from my perspective, actually encouraging.
I believe that history doesn’t repeat; it rhymes. We saw a similar market back in 1995. The market had been flat for a year, and in January 1995 the New York Times posted an article titled “Prepare for a BIG, DEEP BEAR MARKET.” People were genuinely preparing for a market downturn that we could compare to the Great Recession. Never happened. There are more parallels: talk of reforming the healthcare system (Hilary Clinton in the conversation, no less) had the pharmaceuticals up in arms, Orange County California filed for bankruptcy, Mexico had devalued the Peso, and the market was a very old secular bull.
What happened instead of that deep bear market the New York Times article forecast was that the S&P rose from 487 to 1,366 in just five years – a 280% increase; ours would go from 2,090 to 5,890. If our DOW increased at the same rate, we would see it explode from 17,820 to 49,840. I’ve been predicting for several years now that we will see the DOW reach 100,000 in the coming years – could it be in the next five? It’s unlikely, but not out of the question if these numbers hold true. To quote another old adage, “the market climbs a wall of worry.”
At the end of the day, I believe that, if we are holding onto the right stock, it is better to ride out the bad times.