The Dow Jones Industrial Average rose above its all-time intraday and closing highs on March 5, ending at 14,253.77. That’s more than 100 points above the 14,164.53 record it hit in October 2007 before the Great Recession. The almost-four-year bull market is the eighth longest in the last 100 years, and the sixth strongest in terms of the return of the S&P 500.
Wow! So what? Or something in between? Here are some perspectives on the market for the long-term investor.
This upward trend for the markets continues against a backdrop of monetary policy decisions and continuous (albeit slow) economic growth. The Fed and other central banks continue to pursue a policy of easy money and low interest rates, and economic growth is unspectacular but solid: corporate earnings and dividends are rising, the U.S. housing market is growing, the unemployment rate is gradually declining, and the auto industry is healthy again.
Low interest rates and low bond yields mean investors seeking income are increasingly turning to stocks. And periodic reminders of continued weakness in the euro zone, like the recent Italian elections, give investors worldwide a reason to move money into the United States. Demand increases price, so the Dow is rising.
Now for two reality checks.
First, since the end of 1994 and the beginning of the 1990s stock boom, consumer prices have risen 55%. The Dow has more than doubled since 1994, but after adjusting for that 55% inflation, it shows no gains since the first part of 1999. Investors planning for retirement have to remember that ignoring inflation overstates the value of future investments and understates the amount of money needed for retirement. Second, the four-year bull market and the “lost decade” that preceded it yielded a total return on stocks less than half the historical norm.
And a reminder.
There’s still a lot of money sitting on the sidelines, and a lot of people who are getting ready to jump in. If you’re one of them, remember that a new all-time high is just a number, so don’t get swept up in an emotional reaction to highs or lows.
The fundamental things apply as time goes by, the first of which is that even the pros can’t time the markets in the short term. You should have a long-term plan that integrates your investments, savings, taxes and risk management. Adjust it periodically as markets and the economy warrant. And, stay invested because investments work; investors don’t.
The Dow Jones Industrial Average is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.