As expected, the FOMC has decided to raise the Fed Funds Rate by 0.25%.
Eight years ago from yesterday the S&P 500 set its closing low of the Great Recession bear market. We couldn’t know it at the time, but that day marked the end to one of the worst bear markets on record. Since that low close of $676, the S&P has risen 250% to $2,365 where it closed yesterday. Here’s the path it took.
Pretty impressive. In fact, this bull market is the second longest and second strongest going all the way back to the Great Depression.
In addition to experiencing the second greatest rise since the Great Depression, this market is now also experiencing the second most stretched valuations of all time… just a few percent behind the Dot-Com Bubble. To be clear, that’s not a good thing.
Your investment strategy should be determined by the lesser of (1) your financial capacity for risk and (2) your emotional capacity for risk. Otherwise, you are likely jeopardizing your financial goals.
What’s the difference you ask?
Financial capacity is the ability to achieve your financial goals even after a severe stock market decline.
Emotional capacity is the ability to stomach volatility and losses in a severe stock market decline.
A couple examples will help illustrate these concepts.
Dr. John Hussman wrote another great commentary this week on the topic of extreme valuations in the market currently. His article is linked here with some notable quotes extracted below:
Notable quotes from the article: