Has the Market Gotten Ahead of Itself?

By Aradhana Kejriwal   |   April 11, 2012

Has the market gotten ahead of itself?  The upward trend that started from the March 9, 2009 market lows recently celebrated its third birthday in grand style.  Since then, the major market indexes have doubled.In the first two months of this year alone, the S&P 500 earned 9%; the markets have rallied 30% since last October.  Bloomberg.  The S&P 500’s underlying fundamentals have been equally stellar, nearly doubling on two key metrics – operating earnings and profit margins.

Now what?  Are we nearing this bull market’s peak or will this upward momentum survive to celebrate another birthday?  Will the corporate earnings and profit margins continue to double?  Many investors are asking themselves whether the market’s gains have gotten ahead of reality.  If so, is it time to take your profits and run?  And if you do cash out, when should you get back in the market?

Currently, the market’s underlying fundamentals indicate that the economic growth is slow but stable, that valuations are fairly priced, and that corporations such as Apple are using their earnings to buy back shares and declare dividends.   New York Times, March 19, 2012.  Even though mutual stock fund flows remain negative, we believe that these factors and others together may keep the stock market growing over the long term.

We believe there are a number of economic and financial risks for investors to consider besides the sharp run-up in stock prices.  We see a number of evolving risks for investors, including, inter alia, the increased macro uncertainty surrounding the ability of Greece and Spain to meet their debt obligations, rising oil prices, signs of slowing economic growth in China and Europe, and high unemployment and high national debt in the U.S.  Once we identify risks, we look for opportunities to reduce the impact of those risks through diversification.

GV Financial Advisors uses sophisticated investment models to create customized portfolios based on each client’s individual’s requirements for short-term income, long-term growth and aversion to risk.  If you have questions or doubts about your own portfolio, we invite you to request a frank assessment from a GV Financial Advisor who will evaluate your financial situation and advise you about long-term investment and risk-deterrent strategies that might better address your needs for protecting your nest egg while generating long-term asset growth.

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