In case you didn’t pick-up a newspaper or turn on the TV in the past 24 hours, the Dow Jones reached a record high yesterday and closed at 14,253.77. The prior closing high of 14,464 was set on October 9, 2007.
While we are all for new highs in the markets, the hope would be that those levels are reached based on solid economic fundamentals. Today, the US economy is in much worse shape than the last time the DJIA reached such lofty heights. We will grant you that companies are now global and it might be myopic to look only at the US economy; the reality is Europe and Japan might actually be in worse shape than the US. Consider the chart below of where certain economic data points were in 2007 versus now.
So, while we are all for rising markets, we think the higher prices are more likely transient considering the rough state of the global economy and the continuing global political dysfunction. For most, it is clear that the run-up in global stock prices has been fueled by global central bank monetary easing. The question is: What happens when the central banks take the punch bowl away from the party? Or, what happens when their efforts no longer work? The history of central banking is not pretty and leaves us very cautious on global stocks.
Do you have an investment strategy that seeks to protect your portfolio against volatile economic conditions? Call me to schedule a free review of your current investment portfolio – 913.402.6099.
John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit http://www.chladekwealth.com.