Average investor shouldn't get too high on this bull market, expert says
(TND) — We're in a bull market.
We've actually been in a bull market for a while, but that status is now acknowledged with the S&P 500 having recently reached a 20% increase from its October low.
The S&P 500 is a “bellwether” stock market index, though the Nasdaq has risen even higher since it bottomed out, said James Royal, Bankrate’s principal writer for investing and wealth management.
“You don't know you're in one until it's well started,” Royal said of a bull market.
Bull markets tend to last much longer than bear markets, he said. The typical bull market since World War II has lasted four to five years.
But Royal thinks this will be an exception – a much shorter bull market due to the threat of a recession that he “absolutely” still expects will happen.
Another concern is that this bull market is being driven by a narrow group of stocks: technology giants Amazon, Apple, Alphabets and Microsoft among them.
“It is concerning, because often what you see before the market turns is a run to what are considered the safe stocks,” Royal said. “And almost by definition, the safe stocks are the big, large stocks with the attractive businesses. And that is the Apples, the Microsofts, the Amazons, the Alphabets.”
Royal is expecting a slowdown in economic activity in the next several months.
And that should inform the Federal Reserve’s decisions on future rate hikes.
“Right now, the Fed is poised to pause its unprecedented string of interest rate hikes,” Royal said.
The Federal Open Market Committee is meeting this week. Its next meeting will then be in late July.
“And we'll see. Right now, the market is expecting a July interest rate hike,” Royal said. “But if ... we continue to see weakening economic activity, maybe that's even off the table.”
That slower economic activity will filter into corporate earnings, and that should “reduce the animal spirits on Wall Street,” Royal said.
So, what does this bull market mean for the average person?
Not much, Royal said.
“Never get too anxious about a bear market, and never get too excited about a bull market,” he said. “And just continue to invest and add for the long-term.”
Don’t get swept up in the “Wall Street trader game,” he warned.
Make sure your debts are paid down and you've got emergency funds to ride out a potential recession, he said.
If that’s the case, then neither this bull market nor the threat of a recession should fundamentally alter your investment approach, Royal said.
Over time, the S&P 500 has risen about 10% annually, he said. It’s just a bumpy road at times.
And he noted that many of the market’s best days come right after some of its worst days, so divesting might mean you’ll miss out there.
“That's why that famous expression (is), ‘Time in the market is more important than timing the market,’” he said.
Even if Royal expects this bull market to have a short run, the next one is right around the corner, he said. And there’s a better chance that one will have the typical four- or five-year run of growth.
“The next bull market starts in a recession,” he said.