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Irrational Exuberance – It’s Been 15 Years

It was another crazy week in the markets.  The Thanksgiving week was the worst for the Standard & Poor’s 500 (S&P 500) in the past 80 years.  This last week, both the S&P 500 and the Dow Jones Industrial Average (Dow) posted returns in excess of 7% –the best move in those indices since the fall of 2008.  In fact, at one point in the week it looked like the Dow might hit a 1,000 point weekly return.

We will simply have to settle for the second biggest weekly point gain in the Dow’s history, the 10th best week in the S&P 500 since World War II, and only the 13th week in history where the S&P 500 gained in excess of 7%.

For the week, the Dow gained 7.01% to finish at 12,019, the S&P 500 gained 7.39% to finish at 1,244 and the Nasdaq Composite Index gained 7.59% to finish at 2,627. The Russell 2000 Index, which tracks the performance of small capitalization stocks, gained an incredible 10.34% to finish at 735.

I think it speaks volumes about how desensitized investors have become to these kinds of big market moves.  If we had a +7% week 15 years ago, it would have been a monster news event.  Instead, according to a report from Bespoke Investment Group, we have had 16 days of the S&P 500 (on an intraday basis) moving +/-5% since August 1st.  SIXTEEN!

Fifteen years ago today, Alan Greenspan used the phrase “irrational exuberance” in a speech given at the American Enterprise Institute. Today, even after last week’s market action, I wonder if investors may actually be “irrationally pessimistic”.

Check back in 15 years.  Until then, stick to your plan unless something in your life has changed the need for short-term liquidity.  We will favor equities over fixed income, growth over value, small caps over large and cyclical sectors like tech and consumer discretionary over the defensive sectors such as utilities and telecom.

Call us for help or if you have any questions.

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David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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