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Is the Bull Market
Ending?... Page 2
continued
Q: The bull stock market is coming to an end.
A: True. But when is the question. All bull markets eventually end, and this one has had
an unprecedented run. Some of the clues that a bull market is ending:
- Interest rates rise for 3-month Treasury bills
- The Federal Reserve rates the discount rate three times.
- The Department of Commerce’s index of leading economic indicators is down three
months in a row.
- The stock market indexes are moving up, but the advance/decline line (the difference
between the winners and losers each day) is dropping
- One stock market index is moving up, but others are declining.
- We have had some of these over the past year, but not all of them together. Stay tuned.
Q: When the bull market ends, it will probably be like the stock market crash of
1987.
A: False. Stock market speculation and program trading have been severely collared by
federal regulations since the stock market crash, and now complex trading brakes kick in
to cushion the fall when the stock market begins to slide. An economic crisis likely will
creep rather than crash.
Q: Mortgage rates go up right after the Federal Reserve raises interest rates.
A: False. Certainly rising federal funds rates (the interest rate that banks charge each
other) impacts interest rates, but the impact is anticipatory. That is, interest rates go
up in anticipation of the rise, not in reaction to the increase. So it’s already
built into your mortgage rate. The real question is, what’s around the corner? Many
economists are predicting further increases in March, May and June.
Q: My best bet is to convert everything I own to cash and wait out the storm.
A: False. Hunkering down is a good idea when a tornado is approaching, but it’s bad
advice for a long-term investor. If you sell, you may miss the party later. The total gain
from a bully market tends to occur rapidly at the beginning of a market recovery. So
it’s more important to be in the bull market from the beginning than it is to avoid
the bear markets.
Q: In any market, even volatile ones, a savvy investor can make money.
A: Very, very true. Volatility can actually help you if you are a regular investor. For
example, let’s say you have $500 going into a stock fund in your 401(k) each month.
If the market is down on payday, shout "Hooray!" That’s because you’ll
get more shares for your money than if the market were up. It’s like going shopping
and finding that everything you need is on sale.
The Women's Institute for Financial
Education (WIFE) is a non-profit organization which provides financial education,
networking opportunities, seminars, and workshops for women of all ages. |
