the-markets-just-reached-all-time-highs-in-the-midst-of-a-recession.-should-you-be-worried?

The markets just reached all-time highs in the midst of a recession. Should you be worried?

“Scotty, I need warp speed in three minutes or we’re all dead.” That scene from “Star Trek II: The Wrath of Khan” came to mind when the markets recently shot to a new high. Talk about warp speed! The Enterprise had nothing on the S&P 500’s furious resurrection of the bear market from dead in record time.

2020, the year of unprecedented firsts: a global pandemic, prompting a sweeping economic shutdown resulting in the loss of tens of millions of American jobs, massive monetary stimulus, record fiscal stimulus, plus the most rapid bear market sell-off followed by an equally relentless rally to new highs. From the March 23 low (just a few short months ago) the S&P 500 was up 52.5% through August 21.

Warp speed, Scotty!

So here we are with stocks fully recovered (and then some) while the pandemic still looms. States have opened then closed and reopened again. Remote learning is replacing classrooms, the unemployment rate is still above 10% and company earnings are better than expected but below year-ago levels. Where is the good news in all of this? And, why a meteoric melt-up in stock prices? If I may say so, it seems highly illogical.

In February I penned a column which argued “the best time to plan for a stock sell-off is when indices are hitting new highs, of course.” I suggested when stocks begin their inevitable slide (markets experience a correction of 5% to 10% in just about every annual period) you should increase your contribution level to your 401(k). I hope you did.   ” data-reactid=”19″ type=”text”>But in the short-term, stock performance often seems disconnected from reality, causing many investors to zig when they should zag. In February I penned a column which argued “the best time to plan for a stock sell-off is when indices are hitting new highs, of course.” I suggested when stocks begin their inevitable slide (markets experience a correction of 5% to 10% in just about every annual period) you should increase your contribution level to your 401(k). I hope you did.   

When will extra unemployment start?: Don’t expect $300 boost anytime soon” data-reactid=”20″ type=”text”>When will extra unemployment start?: Don’t expect $300 boost anytime soon

What’s that direct deposit for?: IRS distributes tax refund interest checks to taxpayers who filed 2019 returns on time” data-reactid=”21″ type=”text”>What’s that direct deposit for?: IRS distributes tax refund interest checks to taxpayers who filed 2019 returns on time

Here we are at new highs again. This market, however, is different than the February high when the economy was roaring and unemployment was at historic lows. You see, this record is one of only five new record highs achieved when the economy is in recession. The previous four times stocks, on average, were 11% higher one month later. The previous new high occurred during a ten-year bull market. This record follows a bear market. They are not the same.

As you take a fresh look at your 401(k) consider the following. 

• Remember that the political calendar traditionally takes over after Labor Day. Earnings season is largely in the books and with nothing else to focus on, the market begins to anticipate the election. Expect volatility—don’t rush into the recent winners, the supercharged growth stocks that have reached stratospheric levels. Rather, pace yourself. Maintain diversification. If you want to take more risk, spread your allocation among multiple funds with different strategies. ” data-reactid=”25″ type=”text”>• Remember that the political calendar traditionally takes over after Labor Day. Earnings season is largely in the books and with nothing else to focus on, the market begins to anticipate the election. Expect volatility—don’t rush into the recent winners, the supercharged growth stocks that have reached stratospheric levels. Rather, pace yourself. Maintain diversification. If you want to take more risk, spread your allocation among multiple funds with different strategies. 

New highs should not be scary. Markets go up about two-thirds of the time, which means new highs are achieved frequently. Stick to your plan, and live long and prosper.

This article originally appeared on USA TODAY: Stock tips: Markets reach all-time highs. Is it time to sell?” data-reactid=”29″ type=”text”>This article originally appeared on USA TODAY: Stock tips: Markets reach all-time highs. Is it time to sell?

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