Broker Check

Market Commentary: 4th Quarter 2017

High Market Valuations & a Rockin’ Economy

Usually, seeing market indexes at all-time highs would indicate a time for caution for investors. Some may indeed act to protect gains and reduce risks. However, the current economic data continues to point to growth and increased market activity here and abroad.

So, what’s an investor to do?

Well, what do we mean when we say, leading indicators point to more growth and higher values? For one example, the FocusEconomics forecast for September 27, 2017 says, “Growth this year will continue to benefit from steady gains in employment and a revival in non-residential investment and exports.” The forecast goes on to say, “Next year, growth is expected to come in at a slighter faster clip as a result of solid consumer spending, robust investment and renewed strength in the housing market.”1

That sure sounds rosy. But at times, fundamental data has proven to be an unreliable indicator of market direction. There are many examples of market psychology trumping fundamentals.2 Just when data seems to indicate expansion and growth in the economy, some catalyst will upset markets. Perhaps a new event that elicits fear. And soon the dip turns into an apparent correction, which turns into a longer term significant drop in market values.

So, are we headed for a correction? It’s likely. But, when?

Essentially, three paths lie before investors:

  1. Be aggressive (high risk)
  2. Moderate your risk (medium risk)
  3. Protect recent gains (low risk).

The high-risk approach will enjoy better gains if the market advances, but may be in for a rough ride if markets prove volatile, or assets may suffer significant losses before being able to protect. Moderate or balanced portfolios may expect to partially participate in gains but they will avoid severe losses in a down turn. While protected portfolios will miss out on gains if growth continues, but may breathe easy in the face of a correction.

An unusual situation? Not really. It’s a common dilemma. What’s your psychology?

At the beginning of the 4th Quarter, we recommend a more aggressive allocation while standing ready to protect when a downturn occurs. This approach will likely experience some loss at a trend reversal. But, we are counting on gains to outweigh the loss at a trend reversal. Since November 2016, this strategy has produced extraordinary gains, most of which we believe will be retained when the current trend reverses.

Call us to discuss your concerns or interest in help reaching your financial goals. We are here to help.

David L. Harris, PhD, ChFC, CFP®
Wealth Advisor

(310) 318-3700

  1David Ampudia, 9/27/17, Economic Snapshot for the Major Economies, FocusEconomics []
   2Psychology has been recognized as a factor extraneous to market data for years CF, September 22, 2017 Psychology Today article “Emotion, Not Rational Logic, Determines the Stock Market.”

[If you would like a confidential review of your portfolio, call for an appointment, or book your meeting on-line at It is free and without obligation for investors with portfolios of $500,000 or more.]