Major media have been warning about a possible break in the bull market. The most pointed of these appears in the September, 2017, issue of Money magazine in an article entitled, “‘It’s Going to Collapse’ and Other Dire Warnings About Stocks.” The article consists mainly of interviews with five investment pundits and money managers. Headlines to the interviews tell the story:

“It’s Going To Be Agonizing.”
“It’s Going To Collapse.”
“Asset Holders Will Lose 50%.”
“All Markets Are Increasingly At Risk.”
“There’s Not Enough Fear.”

As if in response, two articles in The New York Times stoked the flare-up of fear. In the August 6 issue, the chief global strategist for a major investment banking firm asks, “When Will the Tech Bubble Burst?” The author’s focus on the tech sectors is relevant, because, as the article points out, “Seven of the world’s 10 most valuable companies are in the tech sector.” (See my post, “Doing The Right Thing” for more on that point.) The article does not hazard an expected time for a bust, but it does say, “…it is clear that we are entering the late stages of this cycle.”

On August 20, Times columnist Jeff Sommer attacks the issue from a different point of view, but comes to the same, ominous conclusion–the markets are poised for a drop. Sommer emphasizes the placidity of the U.S. market, stating, “The market has been operating in an extremely rarified world of heightened calm, one that is unlikely to continue.” Quantifying his point, Sommer says, “And for 2017 so far, the average daily trading range has been 0.55 percent, the lowest ever.” He concludes with a pointed warning: “We are pushing our luck. Even if you believe in magic, the markets rarely stay clam and buoyant for such an exceedingly long time.”

The most recent cause for concern comes from Mr. Trump’s threat in an August 22 speech in Arizona: “If we have to close down our government, we’re building that wall.” If the Federal government does indeed shut down, it may be taken as a clear sign that Mr. Trump will not be able to fulfill his promises to cut taxes, reduce regulation, and launch a huge infrastructure program. That could be serious, because anticipation of those programs is precisely what prompted the so-called Trump Jump in the stock market. If they slide off the table, investors could quickly decide that the market is grossly over-valued.

Of course, it’s impossible to know how all this will play out; the markets could be headed for a succession of new highs. It’s this inability to predict the future that makes the 4-step approach outlined in my new book (The Smartest Way to Invest, now on Amazon) so effective:

1. Buy index funds.
2. Buy total market index funds.
3. Buy global.
4. Buy and hold.

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