Does the stock market make you nervous? The Dow Jones industrial average and the Standard & Poor’s 500 are up by more than 9 percent year-to-date, while the Nasdaq Composite index has risen more than 14 percent. Stock indexes seem to reach a record every couple of days, a state of market affairs disconcerting to professional investors.
Perhaps most haunting, no one seems to have a convincing explanation why market volatility is unusually low, especially considering nerve-racking geopolitical tensions and political uncertainty in President Donald Trump’s Washington. The timing is unclear, but money managers fret that markets can’t stay this calm much longer.
To be sure, much of the stock market gains so far this year have been powered by healthy corporate profits, a reviving global economy and signs that information technologies are disrupting more industries.
But on the worrisome side, the ledger is expanding. For instance, central bankers are tightening monetary policies. The Federal Reserve has hiked its benchmark interest rate three times since December. Starry-eyed economic growth forecasts following the November election are being pared back. Too much of stock market sizzle has been concentrated in a handful of stocks, including Facebook, Apple, Amazon and Google.
Little wonder I find more people are asking, “What do you think about the stock market?” One accurate response was captured by investor and author Andy Kessler in a Wall Street Journal column: “Well, as the old Wall Street adage goes, no one rings a bell at the top (or bottom) of the market.”
That said, my more helpful answer is rather than trying to divine the whims of investors, focus on calibrating your portfolio to the rhythms of your life. Think of it as taking something of a household risk assessment. For example, let’s say you are a near-retiree in good health and with ample part-time employment opportunities after saying goodbye to current colleagues for the last time. You have greater capacity to absorb the financial risks of stocks than a near-retiree peer coping with deteriorating health.
A household risk assessment includes reviewing debts. Perhaps you have some credit card debt. Get rid of it. Look at your budget and see whether there are places to cut spending without sacrificing quality of life. These are the kind of risk questions and calculations anyone nervous about the stock market should pursue, and are far more rewarding than trying to pick a market top.
Chris Farrell, senior economics contributor, “Marketplace,” commentator, Minnesota Public Radio.