As it stands right now the S&P 500 is less than 2% from hitting all time highs. The tech heavy Nasdaq 100 is even closer with less than 1.5% to go. This usually builds much anticipation from investors and financial media. If one were to look at the gains on the year for the S&P 500 that may build even more bullish excitement. The S&P 500 is higher by over 15% already this year and it’s only the 4th month. The Nasdaq 100 broke the 20% level on Friday which all is very impressive. Here’s the issue with the markets potentially hitting all time highs...again. Not everyone can celebrate together! Some will still be disappointed, and some will be happy but still nervous.
See, in every market move there are different emotions that come into play. In 2017 the markets seemed to hit new, all-time highs each and every day. Imagine the emotion of investors at that point. At no point was anyone scared or feeling like they were missing out. This means that there really were no sellers as everyone was winning. Now look at the chart below of 2018 and you see that anyone invested early in the year saw a 10% gain on their investment (S&P 500) which was then followed by all of the 10% being erased PLUS another 10%!
Another way to think of the emotion felt? In December of last year everyone who invested anytime in the last 23 months had a loss. Now imagine the emotion of such a large group of investors. Sure, they see that markets are calm and headed for highs now, but not everyone has the same, or even similar gains. For this reason you have different emotions. Some will be using the all time highs to exit where they started and others are still trying to figure out why they don’t have double digit gains that everyone is talking about. All this creates different emotions which cause investors to do crazy things.
Best case scenario, this article is proven wrong and we return to 2017 type markets. We hit new highs every day this year leading to more and more investors simply staying the course. Worst case, all those emotional investors use the all time highs to sell and “wait for a pullback.”
Our job here at Jazz Wealth is to make sure our investors are invested correctly during all the noise. We also love to teach and educate so our clients are always one step ahead of the emotion.
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Jazz Wealth is an SEC registered, fiduciary advisory firm with an educational kicker. We teach our clients and the public on general, and retirement investing.