Where Do We Go From Here?

It’s hard to describe single-digit first half returns as a raging bull market, but it’s also hard to feel too negative about a six month period when U.S. Equities recorded new highs and virtually everything in your portfolio–including bonds–rose in value.

Where do we go from here?

The long bull market that started in March 2009 and the economic expansion that started nearly at the same time are both among the longest since the Civil War. Bull markets have to end eventually; we all know that. However, this growth period has been more like a marathon than the usual recovery sprint after a recession; the economy has grown at a 2% annualized rate since 2009, which is below the long-term average, and considerably below what is normal during a recovery from economic malaise.

Marathon runners–at least in theory–can keep moving longer than sprinters. Is that the case today? The U.S. Federal Reserve has vowed to keep interest rates low for the next 12 months, and many investors seem to be comfortable with this approach, believing it could be a recipe for more economic growth, profits and clear stock market sailing in the foreseeable future.

The truth is, none of us can tell whether the markets will continue to test records or not. The best indicator, and it is not something you can pin down, is whether people are still anxious about the future and concerned about the possibility of a market plunge. Whenever you see most investors finally deciding that the market is on a permanent upward climb, whenever everybody finally gives up on worry and puts their money into the hot market, that is when stocks have probably peaked, and an unpleasant surprise awaits those who joined the party too late.

Where are we on this scale? Few investors seem to be enthusiastic about current market valuations, which some believe to be a bit overpriced. At the same time, the sentiment surveys are in the “complacent” zone, and we are not hearing quite the same shrill tone from perma-bears and pundits who probably feel a bit embarrassed about predicting disaster over and over again as the markets sailed through scary headlines and economic headwinds.

This may be the perfect time to celebrate the fact that we’ve managed to stay invested during fearful times, when government shutdowns, European banking crises and the threat of another meltdown at home were driving others away from the improbable upward trend. Since 2009, only the brave have stayed the course, and they earned the rewards of what, in retrospect, has been one of the most generous bull markets in U.S. history. How much more is in store for them, or when the inevitable pullback will come, is not something we mortals are given to know–despite the loud predictions you will hear from economists and pundits whose crystal balls are no more clear than yours.