Why is the Market Still So Hot?

Jacob Sturgill, CFP®

The market is red hot and, if it continues, will end up being the longest bull market in history. Currently, we are in second place after a record level was reached by the S&P 500 index last July. The bull market to beat was 3,452 days long and ended in 2000. So what is really fueling the market? Pre and post-election optimism? Trump’s policy reform? Low interest rates? Our answer is three part…a plow horse economy, Trump trade, and fixed income experiencing the worst quarter in over 15 years at the end of 2016.

The Federal Open Market Committee (FOMC) oversees the buying and selling of government securities, as well as, making decisions on interest rates. As a result of the 2008 financial crisis, the FOMC utilized a monetary policy of quantitative easing (QE), which is creating new electronic money to buy U.S. government securities to stimulate the economy, put more money into circulation, and increase private sector spending. At the same time the FOMC was instituting QE, Dodd Frank restricted the ability for banks to use the money that they had generated. The end result is a plow horse economy and the second longest bull market on record.

Stock markets are now rallying because of the shift from monetary policy to stimulate the economy, such as QE, towards new fiscal policy to increase government spending on infrastructure and defense, along with, tax cuts and deregulation. Factor in low-unemployment, stable oil prices, wage pressure, and international economies showing signs of improvement and you get your so called Trump trade.

The 10 year treasury is currently around 2.3%.  Why is this important? Because it’s the benchmark that guides other interest rates. Historically, when 10 year treasury is over 5%, stocks go down. The 10 year treasury is around 2.3%. Investors are optimistic, selling bonds and going to stocks. Money is moving, which means there are more buyers. When you have more buyers, prices continue to increase and fuel the bull market.

Is this a recommendation for you to follow the masses and flee bonds for stocks? Making financial decisions based on what is currently happening today, this month or even this quarter can be dangerous to your overall financial health. Financial decisions are best when they are based on your personal circumstances, rather than current news or trends.

People, markets, and politicians are unpredictable.  It’s best to have a plan. If you have a long-term financial plan in place, stay the course. If you haven’t yet developed a financial plan, there’s no better time to get one.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Stock investing involves risk including loss of principal.