The last decade was one of tremendous market optimism, which included the longest bull market in American history.
That is because we have gone 130 months as of January 1st 2020 without a 20% or greater decline in the stock market, breaking the previous record of 113 months.
Fun Fact! The terms for being bullish (or optimistic) or bearish (as pessimistic) have a few different origin stories that are hotly contested among certain crowds:
One theory suggests that it’s based on how the animals attack their prey, bulls attacking upward with their horns and throwing their prey into the air, and bears swiping downward at their prey. If we followed this model on our phones it would be swipe up or down, instead of left or right to approve.
Another theory is that in the 1600’s bulletins were posted in order to trade stocks, and when there were many bulletins the market was bullish, and when it was devoid the bulletin board was “bare” which later transformed into bearish.
While this seems plausible, the usage of bullish or bearish for such reasons would be a measure of volume of trading, not price trends, which is the conventional usage of the terms today.
The market was in a very different place at the start of the last decade compared to the decade we’re starting now. One big difference to consider is that it was the end of what’s known as “the lost decade” – a decade in which the S&P 500 and Dow Jones Industrial Average sometimes fell rather than grew. We were ready for a big rally.
At the start of 2020, we’re at record highs and wondering how much longer this growth could last.
The decade of growth was fueled by the amount of stimulus from lowering interest rates, granting companies an incentive to invest in infostructure and investors a preference for stocks vs. bonds.
At the start of 2020, interest rates are already very low and we are whether the Fed has already used all the tools in it’s toolbox should more stimulus be needed.
Whether the bull market continues remains to be seen – there are many other factors involved beyond investor perception and government intervention. One of the larger concerns is how new technology affects the marketplace, improving quality of life, and automating and changing the workforce.
It may be hard to believe, but only 10 years ago in 2010 Apple first unveiled the IPad. Now tablet computing is so commonplace that it is found within self-checkouts at grocery stores. These standard of living benefits are difficult to quantify in terms of pricing within the stock market.
A game changing technology for the next decade may prove to be the implementation of the self-driving truck/car, reducing the cost for transport of goods for the consumer and freeing up labor hours from commuting times, but also eliminating the newly created Uber workforce and long-standing trucking workforce.
There may be other technologies that could power the stock market to even greater heights, but there are also likely to be unexpected events that could deter growth or put us on track for another lost decade. As one may often read on the disclosure with financial products: “Past performance is no guarantee of future results”.
At Garden State Trust Company, we create a plan for each individual client based on his or her unique situation. It’s not just about what’s happening in the market, or could happen in the market, it’s also about what’s happening with you. We pay close attention to the market, but we also ask questions like:
What are your financial goals?
What is the time-horizon to achieve those goals?
What assets can be leveraged to create a path to fulfill those goals?
What’s your risk-tolerance?
What will be your cash flow and liquidity needs?
Thus, we can formulate an investment policy statement that aligns with our client’s needs and expectations, and will be applicable and followed whether the market stays bullish or becomes bearish in the next decade. Should the client’s situation and needs change, the policy will be reviewed and changed as appropriate.
Let us know if you’d be interested in more information.