The Dow gained 2.2% last month. All the other indexes we follow finished in the green as well. The S&P 500 gained 3%, the NASDAQ was up 5.7% and the Russell 2000 forged ahead 4%. Both July and August are usually not as good to investors as they have been this year. Our short, intermediate and long term indicators are still all pointing in the positive direction, so we remain almost fully invested in the models we manage.
There have been no lack of stories about the stock market crossing the date to become the “longest Bull in history” on August 23rd. I was all set to dispute these stories. Last month, on the 23rd, the indexes we cover in this newsletter had not surpassed the records they’d set on January 26. I was going to make the point that should the market fall into a long-lasting bear before setting a new record, the bear would have (in hind sight) been deemed to have started on January 27th, 2018. However, the S&P 500 and the NASDAQ did surpass their all-time highs just a few days later. As of this writing, the Dow Jones Industrial Average is still a few points shy of its January 26 high of 26617. Since the overall stock market is now the longest Bull Market in history, we should be able to say that we are in the “late stages” of this Bull. So it may be helpful to look back and see how much investors had in stocks in past late stage bulls. According to Ned Davis Research, during the spring of 2000, just after the tech bubble peaked, investors had 63.56% of their portfolios in stock mutual funds, 11.51% in bonds and 24.84% in cash. In October of 2007, as the Great Financial Crisis was starting to unfold, investors had 63.17% of their portfolios invested in stock funds. As of this summer, the amount of stock funds held by investors was a record 63.99%. This is the bottom line; when investors are heavily invested in stocks, there is less money available to drive stock prices higher. More buyers than sellers mean prices go up. More sellers than buyers means that prices go down. This is the law of supply and demand. So, where is the money going to come from, at this late stage in the stock market cycle, to drive prices higher? That is, in my opinion, something to think about