COMMENTARY ARCHIVE: JUL 12, 2007
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S&P 500 Nears All-Time High!!! - So Why am I Worried?
The Standard and Poor's 500 is widely regarded as the best single gauge of the U.S. equities market. This index was up nearly 2% today and came close to surpassing its all-time high.
So why am I not exuberant? Basically, I am suspicious of overconfidence in the stock market, especially when economic news and world events do not justify such a surge (if you'll pardon that term).
This index, which represents over 70% of the money invested in the U.S. equities market, was at a low of 767 in September of 2002. So, it's doubled in five years. That's good, but two and a half years prior to that, the S&P was at 1553, about where it is now. In March of 2000 everyone seemed to be day-trading (now its hedge funds that worry me). Experts were cautious then, but few predicted that the market would lose half of its value.
The market seems volatile now, and a catastrophic event could happen any time. I'm not suggesting that you should sell all your investments and send your money to the infomercial guy who sells gold coins. What I'm saying is that when the market has gone up 16 out of the last 19 months, it may be time for a "correction." This is the playful term used to describe what happens when the market quickly loses 10-20% of its value and investors yell, "YIKES." Trends, positive and negative, don't continue indefinitely. Be happy when the market is going up, but accept that you will probably lose some of those gains when the correction happens.
So if the headlines herald an all-time S&P high, and there is talk about how good George Bush is for the economy, don't forget that it's taken seven and a half years to reach the level the index was at in early 2000.
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