Is the stock market peak ahead of us? Or did it peak back in January? In January, the Dow peaked at over 26,600 and then proceed to fall almost as low as 23,500 in March. Since then, it has been on a bumpy ride, zig-zagging back up over 25,300 this month. A chart of the Dow over the last six months looks somewhat like a mountain range, with several peaks and valleys all along the chart.
So where is the peak? If you believe some analysts, then you could expect the Dow to continue to rise for another couple of years, as they state that the economy is as strong as it has ever been, and they don’t expect a recession to occur for at least two years. If you believe other analysts and economists, they believe that the economy is in the final stages of the economic cycle, and the next recession is around the corner. In fact, this economy is the second longest economic expansion in US history, and could become the longest running expansion in history, if it continues without a recession for another twelve months.
Who should you believe? Should you believe the analysts that potentially gain additional commissions as you continue to blindly buy into the stock market bull run and expect that it will always go up? Or should you believe the economists and historians that have been following the business cycle ups and downs over the past several decades. I was watching a program that was interviewing David Stockman, who has been expecting a bear market to occur for the past couple of years. After the interview, one of the commentators said Stockman would eventually be right, but the question was when?
At some point, the economic cycle will come full circle and there will be a recession. Does it really matter when? Shouldn’t the prudent investor take control of his own situation, and protect himself or herself from a significant market correction? Occasionally, I listen to a local radio program by Ken Moraif, whose tagline is “buy, hold, and sell!” He says something to the effect that you are better off missing out on the final 10% of a stock market rally than losing 50% of your money in a stock market crash. Sounds like good advice to me.