Nothing is more impactful than the investors emotional state of mind. This drives cycles in the market as we both fear and greed in unison. An investor cycle can start with optimism and end with capitulation and despair. What is not tested often is the state of euphoria and how long an euphoric market can last. How long can you be happy without feeling anything else? And why should the stock market be any different?
The last running euphoric, bull trending market, without a consolidation, lasted about 1100 days from 2012 to 2015. This was a rise of more than 73% over that time period with no break in the trend. It turned into consolidation from 2015 to the start of 2017 and now we're off to another euphoric, bull run. During the consolidation phase, no money was made or lost in the S&P 500. (See chart).
So, it can be years that the market can experience an euphoric, bull run without any hiccups. The question remains why is no other negative emotion reflected in the almost 9 year running bull market? Since March 2009 the S&P is up 281% with no measurable end in sight.
There are certainly macroeconomic forces at work. A new federal reserve chair will be selected in the next few days, certainly to impact rates and markets. Low inflation along with low unemployment may be a unique set of circumstances for continued market optimism. So, if external forces alone drove markets then can we assume the same forces would compel a correction in the markets? This may be the driving force that will someday lead us to feeling fear and despair, two of the lower trench emotional states followed by capitulation.
At Eureka Wealth Management, we keep emotions in check as we manage money objectively based on your goals and tolerance for risk. In addition, we study and invest in areas of the market most prone to take advantage of the stages of investor emotions. Call us for a free portfolio review at (760) 537-0791 or eureakwealthmanagement.com.