This week, investors are crossing a notable milestone. March 9, 2009 proved to be the bottom of the months-long market selloff that accompanied the Great Recession. In the five years since hitting that bottom, equity markets have rewarded persistent investors by regaining their 2007 levels and in recent months have begun to climb to new record highs. These market gains have accompanied a climate of broadly improving economic conditions in the U.S. and abroad.
Yet despite these many positive indicators, a feeling seems to persist that things are too good to be true. Many investors seem to find these new market highs as a clear sign that things have gone too far and we have gotten ahead of ourselves. Financial pundits and writers in particular seem to enjoy hyping each new record close as something to be sensationalized.
It is in light of these many commentaries that I have heard in recent months that I found this article on Bloomberg.com to be so refreshing and full of common sense. As the author points out, in a typical market cycle, new highs should (and in fact do) appear regularly. As you might expect, a market that reaches new multi-year highs is actually indicative of a bull market cycle rather than a bear market. The fact that we have entered a period where we are frequently bumping up against new market high levels, especially when accompanied by an expanding economy, a slowly improving labor market, and increased consumer spending, is in my mind a cause for optimism for the prospects of the global equity markets rather than a source of dread.
None of this is to say that a degree of prudent caution is unwarranted. There are many things that could cause the markets to pause or potentially stumble, especially in light of the recent geopolitical turmoil in Russia and Ukraine. Nevertheless, it is important to keep things in perspective and remember that market highs in and of themselves have historically proven to be a positive indicator, and as they are now accompanied by an improving global economy, there is added support for the market and for investors.
www.bloombergview.com/articles/2014-03-05/no-market-highs-are-not-a-bad-sign