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The Dow and the S&P Climb to Record Highs... How Long Will the Rally Last?

Planning Matters Radio / Peter Richon
The Truth Network Radio
February 10, 2024 10:00 am

The Dow and the S&P Climb to Record Highs... How Long Will the Rally Last?

Planning Matters Radio / Peter Richon

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February 10, 2024 10:00 am

The S&P 500 recently crossed its January 2022 peak, fueled by investor optimism and signaling from the Fed that we'll begin to see lower interest rates. The Dow also recently hit a new high. However, as Peter with Richon Planning explains to Erin Kennedy, this rally can't last forever, which is why it's so important to stick to your financial plan.

When the market reaches new highs, investors feel "euphoric" and tend to invest more, precisely when we are at the point of maximum financial risk. This counterintuitive reaction is known as "emotional investing." Remember, the point of maximum financial opportunity is when the market is bottoming out.

If you have a well-designed, holistic financial plan any market highs and lows have already been built into your portfolio. But without a plan, you may make knee-jerk investing decisions based on recent headlines.

If you'd like to speak with Peter about constructing a financial plan suited to your unique goals and risk tolerance, please reach out for a complimentary consultation by calling (919) 300-5886 or visit www.RichonPlanning.com

#markettrends #investing #BehaviorialFinance #wealthmanagement #marketrally

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Welcome back everyone.

Peter, good to see you. The Dow and the S&P climbed to record highs. How long will this rally last? The S&P recently crossed above its January 22 peak, fueled by investor optimism and signals from the Fed that we will begin to see lower interest rates. In the third quarter of 2023, the market experienced a record downturn, but now we're seeing record highs. What's going on? Yeah, well, we had a great fourth quarter.

Right? Is that, in fact, the year prior, 2022, was a terrible year in the market, led by some of the same companies that had such a fantastic start to 2023. 2023, the headline was, at the beginning of the year, we were certain to see a coming recession. And then all of a sudden, the market took off, led by the Magnificent Seven. And it was really like 10 companies that accounted for 90% of the gains of the market for the first three quarters.

And they sort of took off. They sort of cooled down in the third quarter and the market cooled with it. But then in the fourth quarter, basically all of the other companies seemed to join the party and it turned into a much more well-rounded rebound and recovery and value stocks and dividend stocks were participating in that recovery as well.

So the fourth quarter was fantastic, even though the third quarter was not so great. So now here we are in the beginning of 2024 hearing about and hitting record highs in the markets. It's a great thing, but optimism can also be dangerous because now is when people forget that the market can also go down to and is risky. And do we really need to take that risk or should we really take that risk?

Well, why don't we jump there then? Because I do want to talk about, you know, when the market's high, everybody wants to join the party. And this is really, though, the point of maximum financial risk, right?

Yeah, the higher it is, the further it can fall and the more damage it can do. Plus right now, there are gains. There is profit on the table. So you really need to ask yourself, am I willing to take the full risk and full exposure of a potential downturn in the market? And even on the other side, let's look at optimism here. Do I need to have 100% of the upside of the market if it does keep moving up? And there are some people who maybe want that and there's a little bit of a greed factor, but if they truly examine the force of downsides and the potential of loss, maybe they're not willing to stomach all of that. Well, if you've got the investment exposure where you're capturing 100% of the up, you should expect to also realize 100% of the downside. Maybe you only need half of the up.

Maybe you're only willing to experience half of the downside. That is something that you need to risk adjust on an ongoing basis, because as we've seen profits rise and stocks climb, now we've got more risk than we had a year or two ago. I do want to talk about though, consumer sentiment, right? Surged 29% since November, the biggest two month increase since 91. Are investors starting to believe what the experts have been saying that the economy is actually doing well?

I wonder what was going on in 1991 that they had such a surge other than people were starting to really build money in those 401k balances, which right now, by the way, we're hitting the peak of our baby boom and 401ks are starting to move the opposite direction rather than contributions. I always am cautious with optimism and consumer sentiment because if you notice on that chart, the downturns and those grayed out areas, they coincide. When the market turns a certain way, consumer sentiment turns a certain way.

Well, that's reactionary. And if you react to the direction of the market, you're driven by fear or greed. A lot of times that is not a fundamental financial behavior for success that is reacting in a way of things that have already happened to you. And being successful in finance is really based on being a little bit more proactive.

Let's make sure ahead of time that I have a proper balance of risk and opportunity in my portfolio. So, yeah, the fact that we're hitting an all time high and rebounding positive consumer sentiment, it actually does have me a little worried that people are being a little too overly optimistic and have forgotten about the potential for market downturns and losses. We have very short memories when it comes to that.

We do. Recency bias. The only thing that is most recent in my mind, am I going to remember and reflect on what could happen in the future and we forget all of those other terrible things that happened before somehow. Sorry.

I'm going to do a lightning round for you, though. The Fed is still working to navigate that soft landing. Do you think we will see a recession in 2024?

You know, I don't know. I worry about it. But in the grand scheme of things, we're already seeing huge layoffs being announced from those high, same high flying tech companies that were leading the way in the market recovery. I mean, tens of thousands of people in their workforce reductions. If there's not a recession, but you get laid off, does it matter if there's a recession or not? Right.

Or vice versa. If you have job security and you're doing well in your job and your time horizon is that I'm going to continue working for the next five to 10 years or more. And there is a recession.

Does it matter in your individual situation? As long as we got job security, paycheck security and are not depending on our investments, that is an opportunity. It's one of the best opportunities. It's those times in the chart where consumer sentiment was down and the market was way down and we are buying in on sale. Right. But again, I think that with the manipulation, we'll call it that the Fed has had and the control over monetary and fiscal policy. You know, everybody who say in twenty twenty three was the year of the recession and now everybody's euphoric. Well, twenty twenty four could surprise us. There's certainly a lot going on that could lead to potential surprises.

We don't know. But that's why we as individuals need to be prepared and have our our portfolio and our investments properly aligned with our risk tolerance, acceptance and time horizon. Well, and have a financial plan so you're not making these reactionary decisions about your money. Just stick to the plan.

Get a good plan in place and then stick to the plan, because the plan should help to determine and dictate how much risk exposure is appropriate and then that you have stomach for. What do you see as far as other risks or opportunities for twenty twenty four risk is that people continue to ignore taxes. You know, elections have consequences was a phrase.

I'm not sure that either. I know it will matter, but I'm not worried about this upcoming election so much I'm worried about elections for the next 20, 30 years and the direction that our government is going to go. In twenty twenty two, the report from the Congressional Budget Office came out. I have this fun, exciting habit of reading some of those reports. Twenty twenty three. We are expecting out in time, but twenty twenty two. We brought brought in four point nine trillion dollars in tax revenue before Congress even took a seat. Before they spent a single dollar, four point six trillion of that was already gone in mandatory non discretionary spending.

Right. And then and then we had covid and stimulus and pork projects and regular congressional spending in Ukraine. And we're sending billions and hundreds of billions and trillions of dollars out there because of discretionary spending. And by the way, the interest on the debt is one of those non discretionary items that double the amount that we owed on interest doubled between twenty twenty two and twenty twenty three. So I think the risk is not paying attention to and not proactively managing taxes is a big one. And then the opportunity is the other side of that for conscientious, proactive planners. They are looking at taxes as much as investment rates of return, because ultimately it is not what you make. It's what you keep that matters. All right.

Well said. Well, Peter, if somebody would like to talk to you about how they are invested right now or if they would like your help designing a financial plan. What's the best way to reach you? Give me a call at Roshan Planning nine one nine three zero zero five eight eight six nine one nine three hundred five eight eight six. And we do put together the optimized retirement plan, complimentary service that we offer, looking at income, investments, taxes, health care legacy and putting all of that into a written document that you can have in your hands. Again, the optimized retirement plan, if you'd like to take advantage and get one of those, pick up the phone, give me a call.

Nine one nine three zero zero five eight eight six. And it's the weekend. So maybe skip the phone call. Go online. You can also get in touch with me through through our Web site at rich on planning dot com is what it looks like. It's my last name, Roshan.

You can email me, Peter, at Roshan planning dot com. Whenever you're watching this or listening to the program, be happy to get in touch and then get it back to you if I'm not immediately available. So give me a call. All right, Peter, thank you very much. Thank you, Aaron. Always a pleasure.

Everyone here, Roshan here. Hope you enjoy the content. As always, make sure that you like, subscribe, share the videos with others that may find this information helpful. And as always, you're welcome to be in touch or to submit questions or comments. You can comment below the video anything that you'd like to see or hear shared on our YouTube channel. And in future videos, if you've got a topic that you've been thinking about or is of concern for you financially, be sure to let us know. We'd love to help you by discussing it on the channel. So appreciate the continued views and the likes and the subscribes, the shares, the comments always helpful. We look forward to getting you the information that you need.

This has been planning matters radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to take investment tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss of principal advisory services offered through Brooke's own capital management. A registered investment advisor, fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission, which may result in a conflict of interest regarding compensation.
Whisper: medium.en / 2024-02-10 12:26:39 / 2024-02-10 12:31:33 / 5

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