As I write this week’s commentary, the Dow is finally “breathing” as it slides, on track for the biggest daily decline in two months.  The long and intermediate-term charts still point to blue skies which tell me that any pullbacks that occur in the short term should be considered buying opportunities.

With that all said, it wouldn’t be prudent to ignore the obvious.  I’ve already pointed out in previous columns that, while prices “reset” between 2015-16, we still haven’t seen a true, U.S. bear market crash since 2009.  The average market crashes every seven years and the average crash wipes out roughly -42% of investors’ investable assets.  Where we stand today, the market has continued upward for 8 ½ years with only three major corrections in the S&P 500:

  1. 2011: -20%
  2. 2015: -14%
  3. 2016: -12%

The 2011 correction is sometimes argued to have been the last “crash,” but the S&P 500 only closed a hair below -20% before printing a +14% gain in the 10th month of the year, which lead to the biggest gain for any October since The Great Depression.

In addition, and while I’m not normally one to obsess on fundamental data, Crestmont Research has shown time and time again that secular bear markets end with P/E ratios below average… and while the market has continued its cyclical trek northward, have yet to see a “reset” in P/E, which would normally indicate the true beginning of a new, secular bull market.

Going one step further today, most investors don’t know that the stock market and the economy are on two different train tracks.  The market leads the economy – so when the market crashes, it’s usually months after that an economic recession begins.

As you can see in the table below, the average economic expansion lasts about 46 months.  Today, however, we’re living in the 3rd longest expansion since 1900.  By next year, assuming the economy continues to improve, we’ll find ourselves in the 2nd longest – and by 2019 (assuming it lasts that long), 2009 – “present” could end up being the longest, biggest economic expansion in history.

I’m not trying to be a doom and gloomer here.  Just putting things into perspective.  Humans suffer from a horrible case of something called Recency Bias.  They tend to forget things quickly, depending on the most recent information when making decisions.

For now, buyers continue to be in control of the market and as long as this demand continues, we want to participate.  However, as Paul Desmond once told me, “Every bull market ends in a bear market,” so keeping your guard up, being cautious, and be prepared is crucial when it comes to managing your hard-earned retirement dollars.

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The opinions mentioned in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial adviser and strongly consider interviewing a fee-only financial advisory firm, prior to investing. Past performance is not guarantee of future results. Economic forecasts set forth may not develop as predicted. The views and opinions expressed in this commentary are those of Adam D. Koos, CFP® and do not represent the views of TD Ameritrade Institutional and its affiliates. Investing involves risk including loss of principal.