The stock market is reaching new all-time highs, which begs the question: Are we in a market Bubble?
There are two areas to review when thinking about “bubbles” in the stock market: the market fundamentals (valuations) and investor sentiment (or behavior). Both of these are looking quite hot.
On the fundamental side, the popular Shiller PE Ratio currently sits at 38.5. The only time this indicator was higher was in 2000, and you know how that ended.
And investor sentiment, in general, is pretty happy, or dare I mention exuberant? From cryptocurrencies and NFTs, to Meme stocks - investors are bidding up assets to new heights every day. Although corporate earnings are doing very well, the rest of the news is fairly bleak. Given that backdrop, I’d say investor appetite is pretty strong.
So, what should you do as an investor? Unfortunately, that’s the hard part. I know that the stock market will go down but I don’t know when and I don’t know by how much. Without that knowledge, what should you do? Continue to take a defensive stance with your portfolio. If you generally invest 75% in stocks (and 25% in bonds), keep that allocation or tweak it to 70% stocks.
Recall the last drop of 30% in March of 2020? Stocks were on sale you that’s when you want to buy. So be ready to take advantage of the next downturn, whenever that comes.
Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/
